The equipment makers are pushing high-speed third-generation data networks to wireless carriers, but the carriers are dragging their feet.

And as the wireless telecommunications carriers delay their upgrades to the so-called 3G standard, just as their wireline peers are cutting back on their spending, prospects for the wireless equipment makers are dimming along with the fading prospect of revenue-boosting gear sales.

Indeed,

Nortel

(NT)

, one of the largest wireless equipment makers,

warned of a sharp earnings and revenue shortfall, partly because some telecom carriers are delaying their upgrades by a year, to 2002. Meanwhile,

Ericsson

(ERICY)

, the biggest wireless infrastructure outfit of them all, has projected slowing sales growth and profitability for 2001 because it foresees minimal impact from 3G this year.

Peter Baughan, an analyst at

Harding Loevner Management

, thinks sales and profits could slow even further than Ericsson thinks. His firm has no position in Ericsson.

There was a lot of hype over 3G, even just a couple of years ago, with predictions that we'd all be watching movies and arranging business trips from our mobile phones, if not now, then very soon.

The vendors did a fine job of painting a glowing portrait of the possibilities of 2.5G and 3G networks. "A lot of the vendors came up and said, 'You're going to need 3G. Look at the potential growth of subscribers and how much people use their phones. If you put the Internet on the phone, you're going to run out of spectrum and you're going to need new base stations,'" notes Brian Miller, an analyst with

Invesco's

telecommunications fund.

The carriers in Europe bought into the hype, embarking upon a two-pronged plan to ramp up service. They expensively acquired spectrum, to the tune of about $90 billion last year, and put in orders for 3G infrastructure equipment. But reality has set in.

The telcos now understand that the handsets and applications aren't there yet. And that it's prohibitively expensive to build the networks. So they're holding back, to the detriment of the infrastructure players.

Brian Miller, an analyst with

Invesco's

telecommunications fund, estimates that the upgrade to 3G from 2.5G will cost

British Telecommunications

(BTY)

, which controls the second-largest mobile-phone operator in the U.K. behind

Vodafone Group

(VOD) - Get Report

, at least $1 billion. That's 10 times more than it cost BT to upgrade to the 2.5G system, GPRS (general packet radio service), in the U.K., an investment Miller terms "minor."

"The vendors are saying, 'build these networks.' The operators are asking 'why?' when it's unclear how they will make money," explains Jane Zweig, chief executive of

Herschel Shosteck Associates

, an international wireless consultancy.

Since the upgrades to 2.5G have only just happened, with GPRS slated to come online only in the second half of this year at the earliest, when the requisite handsets become commercially available, the upgrade to 3G is even further off.

With the exception of

NTT DoCoMo

, Japan's largest wireless carrier, which has committed to starting 3G service in May, when the major carriers start putting in these systems is uncertain. "It's one of the biggest question marks -- when do the service operators start to spend their money." Miller says.

And though a great many operators have put in orders for 3G infrastructure equipment, they have "a right to cancel," says Todd Bernier, an analyst with

Morningstar.com

.

Many analysts already factor in 3G as a far-off phenomenon, with the equipment makers unable to reap the revenue benefits until at least 2003. Even so, this delays the manufacturers' collection of meaningful revenue from 3G.