Nokia, the world's biggest mobile phone maker, has warned that demand for mobile network equipment has fallen off sharply.

The company said the total market for so-called wireless infrastructure would be down by about 20% in 2002 compared with last year.

It added that it expected the market to fall by a further 10% next year.

The sharp decline comes as debt-laden mobile phone operators continue scaling back their investment plans following several years of rapid expansion in the late 1990s.

Cutbacks

"The outlook for the market continues to be challenging as operators focus on cash flow while cutting back on investments," the company said in a statement.

But Nokia held out the prospect of sustained growth in the world market for mobile handsets, forecasting a 10% expansion next year.

The company said there would be a total of 1.5 billion mobile subscribers by 2005, up from about 1.1 billion at the end of 2002.

Growth in handset sales will also be driven by existing subscribers upgrading to newer models.

Replacement cycle

The firm said that the average time it takes for subscribers to replace their phones appears to be stabilising at about two and a half years after lengthening over the past 18 months.

Nokia's upbeat forecast contrasts with warnings from some analysts that growth in handset sales is set to flatten as the market approaches saturation.

Nokia chief executive Jorma Ollila added that the firm's share of the global handset market had moved closer to its 40% target following strong sales in 2002.

Previously, the firm's market share has been estimated at about 37%.

But investors reacted with dismay to the weak outlook for network equipment sales, marking Nokia shares down more than 7% to $18.58 in early trade on the New York stock exchange.