GAS pipeline company Lattice signed up the first customer to its 186K telecom network as regulatory price cuts hit first-half profits.

A major unnamed UK 3G operator will use 186K's fibre-optic cables in a deal Lattice chief executive Phil Nolan said was worth "tens of millions of pounds".

Lattice hopes to complete its national cable network by the end of the year as it bids to generate a higher percentage of income outside regulated markets.

In the first half, regulatory price-cuts hit turnover at the group's Transco pipeline arm and offset the higher income fuelled by colder weather.

Operating profit at the business fell from £616m to £561m in the six months to June 30 despite higher gas volumes.

Start-up costs from building 186K's network also hurt Lattice and meant group underlying pre-tax profits fell 11 per cent to £398m. Turnover fell by £10m to £1.59bn.

Mr Nolan said that despite the profits drop, operational performance during the first six months was solid.

He added he was confident of making progress in talks with energy industry regulator Ofgem about new pricing proposals for the gas network.

Ofgem's review covers the five-year period to March 2007.