Telecoms company O2 is investing €250 million on a network upgrade that will pave the way for the introduction of mobile broadband.

The Telefonica-owned company has hired Ericsson Ireland to supply and build this new network.

The cost of the deal is estimated at €250 million, and the development will allow O2 to offer third-generation (3G) mobile services and broadband to its customers.

The company plans to redevelop its nationwide network over the next 18 months, beginning with the Republic's main urban centres and then extending the work into rural areas.

It believes that its new services will cover 60 per cent of the population by the end of this year. That will extend to 80 per cent next year, and then to the stage where it will cover 99.6 per cent of the State.

O2 is planning an initial launch of its new services this autumn and has already begun trials with handsets and laptops.

It is not known at this stage what kind of price packages it intends offering alongside its new services. However, it is likely that O2 will offer flat fee broadband packages.

The new network will carry existing second-generation digital mobile services, 3G and broadband.

As well as carrying the usual voice and message services, the network, when it is developed, will allow consumers to access the internet, send and receive e-mail and download large files like videos at high speeds from their homes and workplaces or by using mobile devices.

Consumers will also be able make cheap phone calls using voice-over-internet technology.

The phones and laptops that O2 will be offering will be broadband-enabled, and therefore will not require broadband "hotspots" to be used.

The type of technology that O2 will be using is called high-speed downlink packet access (HSDPA). Initially it will have a capacity of 3.6 megabytes (mb) rising ultimately to 14mb.

This will be higher than the HSDPA capacity that O2's competitors say they will offer.

O2's chief technology officer, Oliver Coughlan, told The Irish Times that the company decided several months ago to renew its network as some of its existing technology is nearing the end of its useful life.

"We decided to redevelop the entire network," he said. "This will enable us to be ahead of the game in terms of products and services.

"We will have 60 per cent of the population covered by the end of this year, as we're starting by swapping out the main urban centres first.

"By the end of 2007 that will move up to 80 per cent because we will move it to rural areas next year."

Mr Coughlan said that the deal was also good news for Ericsson Ireland, which employs 1,600 people in the Republic.

Part of the logic behind O2's move is that 25 per cent of the 1.4 million homes in the Republic have no fixed line telephones, as many people rely solely on mobile phones.

Mr Coughlan said that this will give access to full broadband services to those homes.

O2 has been operating in the Republic since 2000, when BT took over the Esat Telecom fixed-line and mobile businesses.

Later that year, BT demerged and spun off its mobile business, which was then renamed O2. Earlier this year, Spanish group Telefonica took over O2.

O2 has over 1.6 million customers in the Republic and is the second-biggest player in the mobile market behind Vodafone, which has around two million subscribers.

Fixed-line player Eircom is the third largest operator in the mobile sector through its subsidiary, Meteor.