British mobile phone companies could be forced to cap the amount of spectrum they own under a proposal aimed at settling a long-running dispute and fulfilling the government's target of providing universal broadband.

The country's five main mobile operators have been in dispute since the telecoms regulator Ofcom said in 2007 it could take radio spectrum away from the two top operators O2, owned by Telefonica, and Vodafone.

Ofcom said at the time the 900 Megahertz spectrum could then be auctioned off to the three remaining operators -- Orange, T-Mobile and 3 which could lead to billions of pounds in network rollout savings.

Ofcom wanted to lift regulatory restrictions on the use of spectrum so that third-generation (3G) mobile phone services such as surfing the Internet and using gaming services could also be offered over older second generation (2G) networks.

They said it was cheaper to provide 3G-type services over the 900 MHz band in rural areas than its rival 2G frequency, the 1800 MHz, as the lower frequency travels further and needs fewer base stations and masts.

But O2 and Vodafone protested against the plans and the dispute was seen as a potential barrier to the government's plans to roll out universal broadband, which would need cooperation from the mobile companies.

Under the proposals outlined by the Independent Spectrum Broker on Wednesday, mobile companies would be given a spectrum cap, meaning they could hold on to the spectrum they own but would need to sell it before buying any more.

Orange is owned by France Telecom, Deutsche Telekom owns T-Mobile and 3 is owned by Hutchison Whampoa.

(Reporting by Kate Holton)

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