Ericsson's chief executive Kurt Hellstrom has admitted that gloom may continue to haunt the telecoms industry until the end of 2003.

"We don't think the market has become worse, but the downturn has been prolonged," Mr Hellstrom told the Financial Times.

"We have to face the possibility that next year doesn't turn upwards," he said.

Kurt Hellstrom will face aggrieved shareholders on Thursday

His negative comments come the day before an extraordinary general meeting when shareholders will vote on a controversial $3.1bn (�2.13bn) rights issue.

A rights issue - when a firm raises cash by selling new shares to existing shareholders at a discount from the market rate - would help Ericsson through the difficult times.

But fears over the dilutionary impact on existing shares, sent Ericsson's stock to its lowest level since September 1996 on Tuesday.

Desperate measures

The mobile phone industry has been struggling to cope with market saturation in many western countries and a slower than expected enthusiasm for upgrading existing models.

Ericsson has also lost market share to its Nordic rival, Nokia, and has been forced into drastic action to cut costs.

That included 42,000 redundancies - a reduction of 40% of its workforce over three years.

The mobile firms have also lost out from the delays in implementing the next generation of mobile phones (3G) which will allow users to surf the net more quickly and download colour pictures.

Ericsson, as the world's largest mobile telephone equipment company, is helping to build many of these networks.

Hope in 2005

Mr Hellstrom said that operators urgently needed to invest because the quality of networks is degenerating "almost everywhere and particularly in western Europe".

Investment has been hit by ongoing fears over consumer demand for 3G and whether the new services will prove profitable.

Despite widespread doubts over the potential of 3G, Mr Hellstrom continues to predict "massive use," albeit not until 2005.

The group reported its first ever loss last year, and expects to repeat the poor performance this year.

Ericsson stock continued to fall on Wednesday, defying the cheer of the wider technology sector.

The shares are more than 90% below their peak in March 2000.