Third-generation mobile phone services are finally here after a mammoth effort that cost the industry at least 100 billion euros ($123 billion), but new systems that operate much faster already threaten to consign 3G to history.
The new technologies would offer cheaper and faster Web connections and the high-quality video that 3G promised but has not delivered, and regulators are preparing to let operators decide for themselves which system they want to use.
Major wireless service providers such as Nextel in the United States and Britain's Vodafone are trying out Flash-OFDM, a new wireless technology able to carry data 10 times faster and cheaper than 3G networks.
"What we say is that for a $10 investment per person an operator can cover his subscribers. Per Megabit, we come out at one-tenth of the price compared with a third-generation network," Andrew Gilbert, European manager of US-based Flarion which invented Flash-OFDM, told Reuters in an interview.
One Flarion investor is T-Ventures, which is linked to T-Mobile, Europe's second-biggest mobile phone service provider after Vodafone.
Flash-OFDM will start out on laptop computers offering uninterrupted, high-speed connections even when a user's signal switches from one base station to another, allowing employees to access company networks as if they were in the office.
A rival system is WiMAX, supported by US chip giant Intel , which would offer fast wireless Internet over distances of up to 45 kilometres. WiMAX aspires to be the long-distance version of existing local wireless Internet systems.
3G DISAPPOINTMENT: Flash-OFDM is the latest buzzword in an industry that feels let down by 3G.
The first 3G networks that have been opened to consumers this year were initially advertised as being capable of two megabits per second, enough for high-quality video.
But not only is 3G about two years behind schedule after European operators bet their future on radio spectrum licences four years ago, the top speed of the so-called UMTS networks has been pared down to less than 400 kilobits a second.
What is worse, mobile service providers have to prepare customers for just one third of that data speed once the new networks are being used intensively, just enough for a high-quality audio stream.
Adding insult to injury, operators bought the radio frequency licences under the condition they would only use it for 3G cell networks.
The condition was introduced to make sure networks across Europe would work together and repeat the success of the preceding GSM mobile standard.
This helps explain why Vodafone is trying out Flash-OFDM - not a 3G cell technology - in Japan. Other, unnamed European operators are testing in secret, an industry source said.
Analysts say the restrictions have become an unnecessary burden, destroying the value of the licences and wasting radio spectrum when more efficient networks can pump greater amounts of information through the limited airwaves.
It could also mean Europe risks losing its edge in the wireless industry.
"Potential spectrum users will tend to place a lower value on the licences because of the technology constraints they face in the exploitation," British market research group Analysts said.
Regulators, however, are moving to relax the restrictions.
In a speech last month, European Information Commissioner Erkki Liikanen said: "We will probably need to depart from technology constraints attached to spectrum allocation."
This puts the door ajar for Flash-OFDM, which can operate in the same radio spectrum and use the same antennas as UMTS. It can thus be an add-on to UMTS base stations, sharing the fixed network in the ground that connects base stations, Flarion says.
Flarion's Gilbert is quick to point out that he does not want to dethrone UMTS. UMTS is designed for voice calls and modest data usage, and Flash-OFDM was originally designed for demanding computer users.
DOUBTERS: And not everyone in the industry is convinced Flarion will succeed in the mobile handset market. Vendors point out that UMTS will be improved next year with so-called HSDPA add-on technology that will increase data transport speeds.
"We track all key technologies, but it doesn't look probable at this point in time any of them will exceed Wideband-CDMA capabilities", Kai Konola, strategy and business development director at Nokia Networks, told Reuters.
Wideband-CDMA is the generic term for the 3G UMTS networks that are built by the operators which now run 2G GSM networks.
Nokia and rivals such as US-based Qualcomm, Sweden's Ericsson and Germany's Siemens hold key patents on Wideband-CDMA and have an interest in seeing it succeed, while Flarion owns the patents for Flash-OFDM.
As for WiMAX, Nokia was one of the initial supporters of that system, but it did not renew its licence early this year, saying WiMAX was not fit for the flexible mobile use Nokia is seeking.
"Currently we see no business case for operators with any of these now proposed proprietary technologies," Konola added.
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