BY any measure, the British Government's auction of the next generation mobile phone licences last year was a remarkable success.

When the smoke settled and bidding ended, more than £22bn was on the table. The Chancellor was happy and so, it seemed, were the winners.

For the UK's existing mobile operators - BT Cellnet, Vodafone, Orange and One-2-One - the auction was something they simply could not afford to lose. Third generation was seen as a matter of survival.

A year later, many are starting to ask if the £22bn gamble was a huge miscalculation.

Nigel Walley, boss of digital strategists, Decipher, said: "The mobile companies have taken a leap of faith."

Third generation (or 3G in the industry jargon) phones will offer colour screens, sophisticated sound, video on demand and a multi-media Internet experience.

Analysts expect the first 3G phones to cost at least £500. But will anybody care?

Peter Cochrane, former head of technology at BT, is one of the faithful turned sceptics.

He said: "Europe has shot itself in the foot, and certainly the UK has, because I don't think we are going to see 3G."

The difficulty in persuading consumers to upgrade their phones is one of the major reasons handset manufacturers have been forced to cut back production. Nokia, Motorola, and now Ericsson, have all been through difficult times.

In the North-East, Filtronic is still searching for a partner to help off-set losses at its plant in Newton Aycliffe, County Durham.

Filtronic took over the former Fujitsu factory in the hope of supplying chips for the next generation mobiles. But with the market stalled, the factory has become a significant drain on the West Yorkshire group's resources.

Between them, Orange and One-2-One employ more than 6,000 people in the region. In the short-term, the industry's problems should not affect the growth of call centre services.

But the cost of 3G weighs heavily on all the winners - as well as the licences, they also have to pay several billion for infrastructure - and they will have to generate an extra £140 per customer each year just to service the costs.

Thousands of North-East workers are hoping the 3G mobile phone winners will not be losers in the long run