Need to find a cash machine within walking distance?

Wondering which of the closest curry houses is offering a special discount or maybe you'd like to sample the music playing at the nearest rave club before you pay to go in? If your mobile phone can't help you now, it soon will, thanks to technology called LDT. Local determination technology being slotted into new handsets and networks in most cases can pinpoint where you are to within 10 metres and make you a target for all kinds of interesting (and perhaps not so interesting) information.

Having relevant information while you are on the move sounds useful for consumers. But for mobile operators such as Vodafone and Orange, struggling to find new revenue streams to justify a buying binge where they spent billions on new mobile frequencies, anything that will attract revenue is a boon. The big bill paid for third-generation (3G) mobile network licences and softening demand for new mobile handsets is focusing a lot of mobile minds. Operators are working hard to come up with future revenue scenarios to convince their shareholders that the huge outlays for 3G make economic sense.

Location-based services (LBS) alone won't solve their balance-sheet problems, but they can help. According to one study, by 2005 mobile operators in Western Europe alone could be generating revenues of $82bn (£57bn) from LBS, says Strategis Group, a research company. Other studies aren't quite so rosy, but however big the future may be, given the slow download speeds on current Wireless Application Protocol (WAP) phones, for the time being at least, it's probably not a good idea to depend on your phone to find the closest Chinese. As one joke goes, you could starve waiting for the information to download.

That said, the technology is developing rapidly, but most systems are largely in a test phase. Big steps must be made from today's simple method of keying your post code into the phone to help it find you, to much more sophisticated systems that use a variety of technologies, from global positioning satellites to gathering readings from several cellular base stations simultaneously to pinpoint where you are within a few metres. Systems like these are already operating in Finland and Sweden, and will come online in the UK and the US later this year, according to suppliers.

Although location-based services are all about finding the right restaurant or drawing maps, that is not the future. The US software company Autodesk announced last month that it would invest $30bn over the next year in location software for mobile devices, from cars to phones to personal digital assistants, such as the Palm. The Italian car maker Fiat will launch location-based services using Autodesk technology in its new Alpha Romeo 147 in April. The technology will allow mobile operators to send information directly to an in-car information system.

"The future of this technology is about thousands and thousands of transactions happening in real time," says Joe Astroth, executive vice-president of Autodesk. "These need communications-centric systems to make them work."

Knowing where you are at any moment in time is a potential gold mine for companies hoping to offer you the things you need whenever and wherever you want them. Indeed, the market researcher Ovum predicts that of 1.2 billion wireless users by 2005, 450 million will use location-based services. That's a big market, but there is a potentially darker side for consumers. The question is: do you really want Tesco ringing you up with special offers on chicken breasts? What if every retailer on the high street knew your number as well?

"You can turn it off," assures Rama Aysola, CEO of Airflash, a US-based provider of location-based applications for mobile operators. Understandably, Mr Aysola prefers to focus on the lifestyle-enhancing aspects of LBS. Sitting in the London conference room of Airflash's local public relations agency near St James, Mr Aysola dials up an Airflash service that is running on the Orange network. While we are waiting for the WAP phone to connect, he describes another service that allows you to post messages to a group of friends - like an online buddy list - telling them, for instance, that you plan to go to the cinema in Notting Hill at 7pm if they'd like to come. Using LBS technology, only those friends within a certain distance of that cinema will get the message. The network won't bother sending the message to a friend who is in, say, New York. Back in the conference room, the network is still "connecting". Mr Aysola grins sheepishly and we all commiserate about how slow WAP phones are. "I'll just describe it, OK? It will probably be faster," he says.

Orange launched five location-based services developed by Airflash in December, including a UK driving directions service, a cash-machine finder, and a location-relevant business directory for the nearest pubs, restaurants and hotels, as well as a search for the nearest emergency services. The services are only accessible to several hundred thousand Orange WAP customers, and the network is so slow that it is is free. Other UK operators are testing location-based services and BT Cellnet has a few commercial services up and running as well.

"Location is a big game," says Gavin Shurmer, business development manager for content services at Orange. "We see a future where every one of our services will be touched explicitly or implicitly by location. It will be like caller ID is today." So, for instance, Orange could change the rate you pay to make a call depending on where you are. "We could offer you a special rate for using your mobile at home instead of your landline," says Mr Shurmer, adding that the beauty of it is because the network would know where you are, it would change the billing rate automatically.

A study by Mori, commissioned by Airflash, says there is a huge appetite for location-based services. Using a sample of 874 adults in the UK, Mori found that 58 per cent of those interested in these services would be willing to pay an extra £5.99 to £10.99 a month on top of their regular mobile phone bill to get LBS. A third of those interviewed said they would be interested in receiving targeted, location-sensitive advertising - like chicken breast specials.

But Orange is taking it slow. "I think we've got a job ahead of us to validate pricing models with customers," says Mr Shurmer. "I would hate to put a tariff on a driving-directions service and have usage fall way off. So, the [Mori] study is good because it shows there is demand."

Mr Shurmer envisions multiple revenue models. Advertisers might pay to send you a message or you could download directions to a nearby cash machine for free if you agree to receive information about new financial products.

But the pressure is on. Over the last 18 months European mobile operators have spent roughly the equivalent of 1 per cent of Western Europe's GDP, or euros 120bn on European 3G licenses. The new frequencies will allow them to offer their subscribers mobile multimedia services, but not before they spend another estimated euros 130bnto build these new networks. It's a big upfront cost for networks that won't come on line for two to three years. As a consequence, technologies like LBS that can help fill the revenue gap are getting a lot of attention.

Mobile operators believe that LBS will come into their own with the launch of faster GPRS networks later this year, which is making companies that do LBS hot commodities. CPS, which pioneered location technology that works through signals from cellular base stations, recently attracted $32m in investment from the microprocessor giant Intel and Ericsson, the world's largest provider of mobile networking infrastructure. Ericsson also plans to put CPS technology in its networks and base stations.

"People who are designing mobile systems are saying we better have a piece of this company," says Chris Wade, CEO of Cambridge Positioning Systems. Other technology companies, including the US firms SnapTrack (owned by Qualcomm) and Parthus are developing location technologies using satellite signals.

One problem is how the revenues from location-based services will be split among operators, content owners and the application providers, such as Airflash and others like it, including the French company Webraska and US-based InfoSpace. Dividing it up will cut the revenue pie into pretty thin slices. According to Forrester Research, by 2005 location-based services could be worth euros 23 per subscriber each year, which is only equivalent to about 5.5 per cent of the estimated average mobile phone bill. "We don't see location-based services generating big bucks in the short term," says Lars Godell, telecom analyst at Forrester Research. "We are not saying it won't be important but the expectation should be realistic."

For the moment at least, the mobile operators can hope and plan for a bigger revenue pie from LBS. Hopefully for them they will find it and hopefully for consumers someone else other than you will pay for most of it.