Business plans for third generation (3G) operators in the Republic would be unsustainable if the cost of licence fees reached similar levels paid in the UK, according to research by a leading Irish telecoms consultant.

A business case prepared by Dublin-based consultancy, Hardiman Telecoms, shows it would be seven years before telecoms firms would make profits on a cumulative basis in the Republic, even if no licence fee were charged.

The research claims charging operators a fee of £300 million (€380 million) per licence - which is equivalent to the cost of a UK licence when population density is considered - would make 3G business plans redundant.

"A model which considers capital costs against average revenues per user shows a fee of £300 million would prevent operators from achieving a viable business model," says Mr Enda Hardi man, chief executive of Hardi man Telecoms.

The study assumes the cost of building and upgrading a 3G network at £900 million over 10 years. Mobile penetration rates would plateau at about 75 per cent after five years and revenue per user would be around £450 per year, according to the research.

"A fee of £100 million would allow just enough room for companies to create a viable business plan," says Mr Hardiman.

The charges that governments levy on 3G licences - which deliver high-speed Internet services over mobile communications - have proved contentious.

Telecoms operators claim excessive licence fees will slow the roll-out of the technology and translate into higher costs for the consumer. However, many European governments have aimed to extract maximum value from the sale of radio spectrum arguing it is the fairest way to run a competition.

The decision of the Republic's regulator, Ms Etain Doyle, to award four licences by "beauty contest" rather than auction will mean prices will not reach the €37 billion (£29 billion) and €50 billion raised in the British and German auctions this year.

However, differences between senior civil servants over the likely net inflow to the Exchequer have already been exposed through use of the Freedom of Information Act - and the issue of licence fees is certain to prove controversial.

Under Irish legislation telecoms regulator, Ms Etain Doyle, will propose a charge which must be approved by Finance Minister Mr McCreevy. The agreed fee will then be disclosed along with the tender documents for the "beauty contest" about mid-December.

ABN Amro analyst Ms Jemma Houlihan has suggested a fee of €100 million is now at the upper end of expectations for the Republic.

"If we followed the Austrian example, which finished a few weeks ago, the cost would be about €78 million per Irish licence," says Ms Houlihan. "Austria is a good example as it is a small country with a small telecoms market."

The regulator has yet to comment on the matter, but has stated that her aim is to reduce prices for the Irish consumer. But would a lower licence fee necessarily result in lower prices in the Republic?

"It is more likely the UK and the Republic, and possibly even Europe, will end up with one tariff for 3G," according to a source within the Department of Public Enterprise.

The source points to Esat Digifone's special roaming agreement with its parent's mobile operation, BT Cellnet. A common pricing policy for Britain and Ireland could become a more likely prospect if UK operator Vodafone buys Eircell. Such a pricing policy could be on the high side as operators try to recoup the huge costs involved in buying the 3G licences in Britain, according to analysts.

The analysts say that if an operator who had not bought the expensive 3G licences in Britain were to win one in Ireland, this could lead to more competitive pricing. The reasoning is that such an operator would not have to recoup costs from consumers.

It is also felt that it would be unrealistic to charge more than £100 million for a licence in the Republic, because of the difficulties the telecoms sector is facing.

The recent failure of the Italian 3G auction, which finished after just two days and raised half initial estimates, illustrates a new thinking towards 3G licences and other telecoms technologies.

"Telecoms companies are no longer willing to pay huge prices for licences," says Dr Chris Doyle, vice-president at the consultancy, Charles River Associates.

He points to pressure on telecoms companies' credit ratings and a huge sell-off in stock. Some telecoms stocks have fallen by up to 20 per cent since the UK 3G auction earlier this year.

Last week, Charles River represented one bidder in the UK auction for fixed broadband licences, which beam high speed Internet into buildings. The auction ended in dismal failure with almost half the UK regions without a sole bidder for a licence.

Considering the Republic's aim to be at the forefront of technology, the stakes are high. Ms Doyle has about a month to make her decision.