O2 Ireland has told the Commission for Communication Regulation (ComReg) it wants to trim its proposed third generation mobile phone service because of cost.

The number two mobile player wants to save by using a hybrid technology - called EDGE - outside the main urban areas, according to chief executive Ms Danuta Gray.

An EDGE-based network would be cheaper to introduce than third generation (3G), says Ms Gray, but will not offer users as fast a service. The strategy, being evaluated by O2 Ireland management and its parent MMO2, could save the firm millions in investment but it is unlikely to play well with the regulator.

ComReg has set strict roll-out targets for 3G and has already told firms that it will not countenance any delay in investment.

A failure to meet a set of predefined licence commitments could result in hefty fines levied by the agency. Third generation technology offers mobile phone users very fast connection speeds, video and multimedia services.

Originally tipped as the "next big thing", recent scepticism about consumer sentiment and the high cost of introducing the technology is causing firms to reevaluate it.

Ms Gray, who joined O2 Ireland in June 2001 following a stint at the firm's sister firm in Germany, says the company is involved "in ongoing discussions" with ComReg on the issue.

"We are looking at EDGE for different types of geography and densities of population. We think broadband services will be delivered by different types of technologies," says Ms Gray, who believes EDGE would be particularly useful in more rural areas.

"From a country point of view and the Government's if wireless broadband is delivered, does it matter how this is done? It is a much more sensible way to go."

EDGE aims to enhance existing mobile networks and therefore should be cheaper to deploy than 3G, which requires a completely new network technology.

But EDGE - an acronym for enhanced global rates for global evolution - does not offer the same capacity or download speeds as third generation technology, launched last week in Britain by Hutchison 3G, a subsidiary of Hong Kong conglomerate Hutchison Whampoa.

MMO2 said last month it was considering EDGE for its British operation because of delays in the availability of third generation technology. But O2 Ireland - committed to achieving at least 53 per cent demographic coverage in the Republic by 2008 - may see EDGE as an opportunity to save cash.

Not that O2 Ireland is experiencing cash flow problems. Its recent annual return for the year to end March 2002 shows it made pre-tax profit of €77 million on revenues of €640 million.

A decision to introduce EDGE instead of third generation technology may also raise the issue of the digital divide between urban and rural areas. Although, it would fit Ms Gray's own philosophy about the mobile market.

"We need to stop talking about the technology and understand that mobile is like any other industry... We've got to start delivering the services that people really want," she says.

O2's launch of multimedia messaging - which enables mobile users to send photographs, pictures and sounds - demonstrates the focus on service.

This week MMO2 announced a world first by tying up with television station MTV to offer its users a service that enables them to download music to their handsets.

Games and music downloads will prove to be killer applications for the latest generation of mobiles, says Ms Gray.

Mutlimedia messages will be a means of increasing the firm's average revenue per user, says Ms Gray, who also acknowledges that users have only got so much disposable income.

"We've got to classify our services as entertainment services not just mobile. This will enable us to tap into a different part of the consumer's wallet."

Another service shortly to be launched by O2 Ireland reflects the drive to focus on entertainment services. Its "postcard service" will enable O2 users to take a photograph with a camera phone and send it to a central registry by MMS, which will then forward the photograph in physical form as a standard postcard.

Establishing a strong early presence in the market for these higher bandwidth services would serve O2 well considering the likely entry of Hutchsion 3G into the Republic early next year.

"I'll be interested and intrigued to see how they go in the UK," says Ms Gray. "This will indicate how well they will do in the Republic."

The only question mark will be over the type of technology that O2 Ireland plans to implement.