The French government might award two third-generation mobile phone licences as early as March.

The news follows the government's decision on Wednesday to hold another contest for the licences, after contenders bid for only two of the four licences on offer.

Only France Telecom and Vivendi Universal's SFR unit remained in the original contest after Bouygues Telecom pulled out on Tuesday.

France's telecom regulator, ART, has until May 31 to examine the bids by France Telecom and SFR. A decision would then be due in June.

However, because there are only two bidders, the process could be much quicker, leading to a decision in March, according to a government source interviewed by Reuters newsagency.

Round two

By setting up a new tender process, the government has endorsed calls by ART to ensure reasonable competition in the third-generation mobile phone market.

Michel Bon, the chairman of France Telecom, told the German newspaper Sueddeutsche Zeitung that the company would not suffer any negative consequences from the new contest.

He believes the company will have an advantage in securing a licence in the early stages.

It is not possible to have only two operators

ART the French regulator

France was selling the licences at FFr32.5bn (�3.16bn; 4.95bn euros) each in a "beauty contest", under which bidders needed to fulfil specific technical and financial criteria set by the government.

The deadline for bids was 1100 GMT on Wednesday.

The contest differs from an auction because the price of the licences was pre-set.

Suez Lyonnaise des Eaux of France and Spain's Telefonica withdrew their joint application over a week ago, citing the high cost of the licence fee.

Both Bouygues and Telefonica have said they would study the conditions of the new tender for the remaining two licences.

Two operators 'not possible'

Finance minister Laurent Fabius told the French parliament during questioning on Wednesday that it was "natural" for France to hold a contest for the remaining two licences.

French Industry Secretary Christian Pierret also said late on Wednesday he was confident France would have four licence holders by 2003.

Remaining 3G contenders

France Telecom and Orange Vivendi's SFR unit

A spokeswoman for Mr Fabius said that no-one should presume that the prices of the licences would be reduced.

She also stressed that France Telecom and SFR would be treated fairly, and that a second contest would remain competitive.

Third-generation fears

The disintegration of the French contest has highlighted fears about the heavy cost of purchasing third-generation mobile phone licences in Europe and building networks.

Europe's 3G mobile phone proceeds

Germany: $46.1bn UK: $35.4bn Holland: $2.5bn Italy: $10.2bn

Matthew Nordan, research director at Forrester Research, projects that that the total costs of deploying third-generation licences will cause average operating profit for mobile operators in Europe to decrease in 2003, turn negative in 2007, and not recover until 2013.

Auctions in the UK and Germany last year raised many billions of pounds and euros.

The licence winners in the UK paid an average of 630 euros per inhabitant, while in Germany they paid 611 euros.

However, auctions in Austria, Italy and Switzerland were less lucrative, raising much less money than governments had expected.

At FFr32.5bn a licence, France had hoped to pull in 335 euros per inhabitant. The money was earmarked for France's state pension system.

Third-generation, or UMTS (Universal Mobile Telecommunications Service), technology will allow operators to offer new services including video and faster internet access from mobile phones.