Vodafone has confirmed it may not purchase a third-generation mobile phone licence in the Republic in a move that could cost the Exchequer €114 million.

It could also leave Vodafone facing hefty interest penalties.

The largest mobile firm in the State made the disclosure yesterday following a decision by the telecoms regulator to grant it an extra month to pay its first licence fee instalment of €44.4 million.

Vodafone, which was formally offered a licence 15 days ago by the regulator, missed the initial deadline for acceptance of the next-generation licence this week.

The firm said yesterday it would give serious consideration to whether it should accept the mobile licence before the new deadline of September 12th.

"It is a complex process and the extra month will give us time to ensure the decision we make is the right decision for our employees, shareholders and partners," said a Vodafone spokeswoman.

Third-generation mobile technology should enable companies to offer a range of multimedia and video services at high speeds to mobile and hand-held devices.

However, a spate of technical hitches combined with the huge cost of acquiring licences and rolling out networks has caused several firms to pull out of commitments to the new telecommunications technology.

European mobile operators Sonera and Telefónica recently abandoned or deferred their third-generation mobile investments in markets in which they were not the leading mobile phone companies.

Vodafone's request for an extra month to consider whether to take up the licence means it will have to pay up to €290,000 in interest if it decides to purchase the licence.

But if the firm decides not to proceed with an investment in third-generation technology in the Republic it could lose a deposit already paid to the regulator of €2.6 million.

Mr Ultan Ryan, principal consultant at Mason Communications, said the decision by Vodafone to review whether its third-generation project was worthwhile was not surprising.

"Last week Vodafone said it would not be pushing third-generation mobile services outside Japan this year, suggesting there are major questions being asked by the Vodafone Group about the business case for the technology."

Most experts have expressed concern that the expected rapid demand for mobile data services has not materialised.

And with few "killer applications" for third-generation technology yet identified, firms are shying away from making hundreds of millions investment in new networks.

But a decision by Vodafone not to press ahead with its strategy to provide third-generation mobile services in the Republic would be the first time a lead operator in a State had decided to pull back, according to industry sources.

Other mobile phone firms that recently pulled out of third-generation projects in Europe were third or fourth operators in individual markets and not market leaders such as Vodafone Ireland.

A pull-out would represent a major U-turn for Vodafone Ireland and its strategy, which said on June 25th it was "keen to progress the development of its third-generation programme".

Experts believe a decision not to take up the licence in the Republic would be a clear signal of growing disillusionment with the technology, which has cost mobile companies more than $100 million (€102 million) in licence fees in Europe.

It would also have serious repercussions for the Exchequer.

If Vodafone does not invest in an Irish licence it would cost the State an immediate €44.4 million in lost licence fees and, potentially, a further €70 million over the next 15 years.

This would add to the Minister for Finance Mr McCreevy's current fiscal difficulties as he is relying on these licence payments to boost the dwindling State coffers.

An earlier decision by the State's third mobile phone group, Meteor, not to apply for a third-generation licence has already left one of the four licences on offer unclaimed, costing the State a similar fee.

It is likely the telecoms regulator would try to re-run a contest for the two remaining third-generation licences if Vodafone pulled out of the process.

But most experts believe the regulator could not be able to offer newcomers more attractive terms to those offered to O2 and Hong Kong operator Hutchison Whampoa, which have accepted the licences.