O2 suffered embarrassment on Wednesday when regulators threatened sanctions against the UKs largest mobile phone operator if it failed to make its 3G network available to more people.
Ofcom, the telecoms watchdog, said O2 would face the equivalent of a �40m fine if it did not provide 3G coverage to 80 per cent of the population by the end of June.
It said O2 had breached the wireless telegraphy act by only reaching 76 per cent of the population by the end of last year, adding that 2.5m people were wrongly without 3G services.
3G networks allow people to enjoy reasonable web surfing speeds on their mobile phones, as well as e-mail and other services.
The other holders of 3G operating licences - Vodafone, Orange, T-Mobile and 3 - all complied with the requirement to provide services to 80 per cent of the population by the end of December.
Ofcom said that if O2 failed to hit the June deadline, its operating licence would end in August 2021 instead of the planned December 2021.
Noting how O2 paid �4bn for its 3G licence in 2000, the watchdog added: "Ofcom estimates that a reduction of the licence term by four months would be equivalent to a significant financial sanction of at least �40m."
O2 said it had previously concentrated on making its 3G network available where the demand was highest, in towns and cities.
"We are fully committed to growing our 3G coverage and customer base with the best quality 3G service and are confident that we will have met Ofcoms requirement before June 2008," it added.
O2 is also in dispute with Ofcom over the watchdogs plans to strip it of some of its radio spectrum used for 2G services.
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