Mr Paul Donovan has had a two-and-a-half-year honeymoon period since taking the top job at Vodafone Ireland, one of the Republic's most successful firms.

The State's biggest mobile phone company has added 250,000 users since October 2001 and operating profits have more than doubled to €328.28 million in the year to the end of March 2004.

This bumper financial performance was probably a factor in Mr Donovan's recent elevation within the Vodafone Group to an additional position as global director of business integration.

In this role he co-ordinates Vodafone Group's efforts to use its global scale to cut costs, reduce the time it takes to bring new products to market and provide a more integrated service to the firm's 133.4 million users.

But this week's results suggest that things are getting a little bit tougher for the Arsenal- mad Londoner as a mixture of tougher competition and a hiccup in customer spending hurt its figures.

For the first time in its history Vodafone Ireland lost customers in the recent quarter, reducing its total subscriber base by 7,000 to 1.864 million.

Average revenue per user also stalled at €582, raising questions over growth.

"One swallow does not a summer make. There is still plenty of potential for growth in revenues," says Mr Donovan, who highlights that Vodafone's ARPU grew to €582 from €553 in the year to the end of March.

But Mr Donovan admits that the marketplace is competitive and highlights the number of cut-price reductions and promotions currently available to consumers.

The dip in customer figures reflects a once-off restatement to remove 10,000 telemetry customers - people who use mobile SIMS for applications such as meter readings. When this is taken into account the user base actually increased, he says.

Dismissing suggestions that the Irish market may have reached a plateau, Mr Donovan says it is not unusual to find penetration rates over 100 per cent as people use more than one device.

On a positive note, about 230,000 people have bought handsets that can use Vodafone Live!, the firm's multimedia portal.

Multimedia messaging will become more popular as the number of compatible devices rises, he says.

Vodafone Ireland is also benefiting from attracting new investment from its parent. It recently began a €100 million project to manage much of its British parent's IT systems from Dublin.

"We bought an internet data centre in 2002 to meet our own needs for storage but there is extra capacity to help manage a substantial amount of Vodafone UK's IT infrastructure as well."

Ireland has also become Vodafone Group's hub for pre-pay top- up payments in Europe. This has resulted in a €10 million investment in a clearing house centre at Vodafone Ireland which manages top-ups across Europe.

"This is a good example of how an Irish highly-skilled labour force and its good IT infrastructure benefits the wider group."

But Vodafone's capacity for investing in Ireland is best demonstrated by the €3 million daily capital expenditure it makes in its network to upgrade to third generation mobile technology.

"Unlike our competitors who have reduced investment in capital expenditure, we have maintained ours. We now have 300 third generation base stations and are substantially ahead of both O2 and Hutchison."

Vodafone Ireland will finally launch its first third generation product next month, a 3G data card that enables users to connect to the web several times faster than existing mobile cards.

"The 3G trials we are doing now are going well and last week we were given sign-off by Vodafone Group to launch the product following a quality assessment."

A 3G data card will enable people to connect to the web at 364 kilobytes per second rather than the current 56 kilobytes per second on the existing 2.5G card.

But as existing 2.5G data card owners know - they pay €200 for the card, €12.50 per month rental and extra fees per kilobyte downloaded - 3G won't come cheap.

"Clearly it is currently a tool for people who view mobility as a key driver. It is aimed at businessmen but over the course of the next two-three years the prices will come down," he said.

A consumer launch of 3G is scheduled for the fourth quarter when handsets are available. Vodafone and Mr Donovan will hope that faster connections to video, gaming and music will kickstart revenue growth again.

If Vodafone Ireland's €114 million gamble on 3G doesn't pay off, Mr Donovan's honeymoon period will be over for good.