LONDON --

Phone.com

(PHCM)

has seen its technology, which allows people to access the Internet from their mobile phones, gain widespread acceptance in Europe. Yet the highly successful strategy that the Silicon Valley company has followed on the Continent could contain the seeds of its own failure.

As early as 1995, Phone.com foresaw the shift to where more people would surf the Web on their mobile phones than on their personal computers. According to

International Data Corporation

, only 64% of people will use their PCs to access the Internet by 2002, down from 94% in 1999.

The company then developed a server for network operators and a browser embedded in mobile phones, applications that allow people to access and surf the Net from their phones in much the same way that

Netscape's

browser served as the gateway to the Internet for millions of PC users.

Although Japanese consumers have been among the first to buy phones that allow them to download everything from stock quotes to email to cartoon screen savers, just as they would on their PCs, it is Europe that is expected in the long term to surpass both the Asia-Pacific region and North America as the largest market for these devices.

The number of mobile-phone subscribers in Western Europe is expected to hit 237 million by 2003, up from 90 million in 1998, according to

Dataquest

. That means an average penetration rate of 64% across the Continent.

"Europe will start outpacing Asia," as the largest market for the wireless Web outside of the next 12 months, Phone.com CFO Alan Black told

TheStreet.com

during a

Banc of America Securities

conference in London last week. He points out that 40% of the company's revenue now comes from Europe. That's about on par with Asia, while the U.S. kicks in just 20%.

With its business model tied to the growth in handsets, Phone.com is the "favorite pick for the wireless Internet" of Mark McKechnie, an analyst with Banc of America. (He rates the shares a strong buy, and his firm has performed underwriting services for Phone.com.)

McKechnie estimates that Phone.com gets paid between $10 and $15 every time a carrier using one of its servers signs up a new subscriber, which translates into revenue that should more than double to $37.5 million for the year ending June 31.

But don't expect profits anytime soon. As with other fast-growing tech companies, Phone.com should remain loss-making for at least the next two years -- one reason why the stock isn't for the faint of heart. The shares went public at $16 a share last June, zoomed up to 200 by March and have since settled in the 70-range. The shares were trading on Monday at 70 5/8.

Are We Clear?
Phone.com shares have had their share of static

Source: BigCharts

If you buy McKechnie's analysis that, by 2003, Phone.com will be a monster in the wireless-applications sector with a 45% market share, earning $220 million on $850 million in revenue, McKechnie's 12-month price target of 225 looks less ridiculous.

However, those estimates are predicated on Phone.com's ability to hold its own against giants like

Nokia

(NOK) - Get Report

and

Microsoft

(MSFT) - Get Report

, which are likely to want a piece of this emerging market. Making Phone.com's position more precarious is the fact that its strategy to date has been to advocate for openness when it comes to using these technologies -- a plan in stark contrast to other companies that are relying on patents to protect their earnings stream.

And nowhere is that conflict more apparent than in Europe.

Why Can't We All Just Get Along?

In Europe, Phone.com opted for the "if you can't beat 'em, join 'em" approach, when three years ago it partnered with Nokia,

Ericsson

(ERICY)

and

Motorola

(MOT)

to form the WAP (wireless applications protocol) forum. WAP is a technology that provides rapid Internet access to mobile phones and other handheld devices. The main goal of the forum was to develop a standard system for translating Internet data to the smaller mobile-phone screen with the key condition that these processes would be open to anyone who wants to use them.

That means that Nokia and the like are free to develop products that compete directly with Phone.com -- a risk that gives even the bullish McKechnie, the Banc of America analyst, some pause.

"We assume that Nokia, Ericsson and others will likely capture anywhere between 40% to 65% of the remaining share of server installations," McKechnie noted in a recent report. (Phone.com has already installed its servers in 35% of carriers.) To protect its position, Phone.com will have to innovate faster than the competition -- a tall order in today's rapidly changing environment.

Phone.com's Black plays down any threat from incumbents. "I'm not sure you'll see existing giants leading the way in this area," he argues.

Even so, Phone.com isn't taking any chances. With the aim of getting big fast, the company has embarked on a European buying spree. It recently completed its fourth purchase on the continent when it bought

ApiON Telecoms

, a telecommunications-software company in Belfast, Northern Ireland. Coupled with a U.K. subsidiary launched in 1997, the company now employees 300 people in Europe.

Yet, the battle for control of the translation of data from Net to phone is only getting started. Phone.com recently filed a lawsuit against

Geoworks

(GWRX)

of Alameda, Calif., which wants to enforce its patents to charge companies a licensing fee, should they use its technology that shrinks content to fit the smaller screens of mobile phones.

Should Nokia or Ericsson decide that they want a bigger slice of this pie, Phone.com's open-door policy could end up seeing some of its market share fly out the window.