Radio Frequency Identification (RFID) is generating increasing interest in Europe as projects using the technology begin to proliferate in a variety of markets including retail, transportation, pharmaceuticals and livestock.

According to consulting company Frost & Sullivan, spending on RFID-related hardware, software and services in Europe will exceed €5bn in 2007 as firms adopt the technology in a bid to boost supply chain efficiency.

While the retail and government vertical markets are likely to lead this spending, transport, logistics and manufacturing are also likely to contribute significant shares.

Frost & Sullivan noted that the current high prices of transponders or tags are a major obstacle to the mass adoption of RFID and manufacturers need to price these components more realistically for the technology to enter the mainstream.

Although the analyst firm conceded that this process will take time, it observed that tag costs are already dropping.

As far as the opportunities for mobile operators are concerned, Frost & Sullivan believes that RFID holds "great potential" for operators seeking to increase average revenue per user, especially from low-margin data services.

"European operators have a key role to play in the transport of RFID data from field locations to the back office for one of two reasons," said Frost & Sullivan ICT consultant Andrew Tanner-Smith.

"It is the best technology to allow remote access on a large scale, and it replaces fixed telecoms lines, through the process of fixed-mobile substitution, where these have been the preferred data transport method in the past."

While Frost & Sullivan does not expect significant opportunities in RFID projects to materialise until 2007, it recommends that mobile operators start developing and putting strategies in place to take advantage of these opportunities.

It believes that the market will start gaining traction around 2007 due to the ongoing fixed-mobile substitution.

Currently, the extent of the operator's role in a RFID implementation seems to be confined to acting as a conduit for mobile and data traffic. However, many larger European operators are beginning to realise that their contribution to the market could be significantly higher.

Tanner-Smith added: "In the future, Frost & Sullivan expects operators to increase the range of applications they offer to include those that may make use of RFID data, with some companies perhaps beginning to offer enterprise mobility services in this area."

As the market develops, mobile network operators and wireless local area network providers are likely to gain over fixed telecom networks in terms of carrying increased RFID data.

Frost & Sullivan expects the volume of data generated to increase to the point where mobile operators could well be transporting terabytes of RFID generated data through their networks in 2009.

"This is not an insignificant amount of data, and operators need to ally themselves with key participants in the RFID industry to turn this projection into a reality," said Tanner-Smith.

"They need to identify the right vertical markets for their organisations to target, and be realistic about the pricing of their data transport services."