BT is building a personal digital assistant (PDA) based on Microsoft's Pocket PC 2002 operating system. mmO2, formerly BT Wireless, says it will ship the O2xda, a combined mobile phone and PDA, in the first quarter of next year.

The software will include an audio player, Microsoft Pocket Word and Excel. It will also offer text messaging, email, instant messaging and access to the internet.

The O2xda will be sold on the back of always-on data access via BT Cellnet's GPRS network. It will be based on an Intel StrongARM 32-bit processor with 32Mb of flashable Rom, and 32Mb of Ram for additional applications and data.

The device will be among the first products to use the latest version of Microsoft's handheld operating system.

Pocket PC 2002 incorporates support for Bluetooth and 802.11 networking, and ships with Windows Media Player 8 and Microsoft Reader 2 for the secure downloading and viewing of online books. It is expected to cost between £400 and £500.

Innovations showcased at last week's launch included improved security and a terminal services client application which offers corporate users wireless access to server-based applications.

"Mobile devices have to be the first-class citizens of the world's networks along with PCs," said Juha Christensen, vice president of Microsoft's Mobility Group.

Six mobile operators including Orange and Vodafone announced support for Pocket PC 2002, alongside hardware manufacturers including Compaq, Hewlett Packard (HP), Toshiba, Casio and NEC.

Existing Compaq iPaq devices can be Flash-upgraded to run the new operating system, but existing devices from HP and Casio cannot.

Although additional services to corporate users are a major part of its strategy, much of the emphasis of the new operating system remains on consumers, according to IDC research analyst Tim Mui.

He explained that corporate users are likely to wait until there is sufficient availability of GPRS or 802.11 networking before they invest large amounts in such devices.