MM02, the former mobile arm of BT, is this week expected to record its first profit, fuelling speculation it could become a bid target for a larger European competitor such as KPN of Holland, Telefónica of Spain or Telecom Italia.

The turnaround at the company will impress shareholders, who only six months ago were told it had lost more than £10bn in 2002 after writing down the value of its third-generation mobile licences. Now analysts forecast that it should be in the black at the halfway stage in 2003, the first time the operation has made a profit after exceptional charges since its inception as Cellnet within BT in 1985.

For years, Cellnet was jointly owned with Securicor, but BT bought out its stake in 1999. MM02 was demerged from BT in 2001.

Analysts at Commerzbank and Deutsche Bank estimate that MM02 could record interim profits of between £60m and £80m, but house broker Merrill Lynch has pencilled in about £30m. Cazenove is estimating a loss of £2m. The average figure from leading forecasters is that the company will make £20m.

MM02, chaired by former British Gas boss David Varley, and with Peter Erskine as chief executive, is said to have lifted its performance by attracting tens of thousands of extra customers, cutting debt to under £500m, curbing capital expenditure and keeping a lid on costs.

The company is also expected to tell investors that its German operation could make a profit by the end of 2004. There has been speculation that MM02 could merge its German arm with KPN, but Erskine may retain the business to make MM02 a more appealing proposition for a bidder seeking to operate both in Britain and on the Continent.

· Vodafone, which reports this week, is expected to reveal that it plans a share buyback of £1bn to £2bn.