WASHINGTON -- Dozens of European companies are racing to complete work on $78 million in contracts that lay the groundwork for a new European satellite system for navigation.

The system, called Galileo (not to be confused with the U.S. spacecraft currently orbiting Jupiter), could be used to guide lost motorists, monitor the health of crops and guide construction equipment.

The contracts, issued at the end of 1999, are for studies to help leaders at the European Union decide whether to build the system. That decision is to be made at the end of this year. If built, Galileo would become fully operational in 2008.

With a list of applications that seems to swell daily, the growth of the satellite navigation industry has been "phenomenal," said Mike Swiek, executive director of the United States GPS Industry Council, who predicts a $10 billion market for GPS in the next five years. That compares with 14 years ago, when the GPS market was just $40 million.

A Department of Commerce study found that the worldwide market for GPS services was growing at just under 25 percent a year. Worldwide sales, it said, are expected to top $8 billion this year and exceed $16 billion by 2003.

Though many other countries use GPS, European officials were uncomfortable with the idea of relying heavily on a system operated by the U.S., particularly a system built initially for the military. These sovereignty issues were the original impetus for the Europeans to propose Galileo.

The growing market for satellite navigation has not been lost on the Europeans, however, and business reasons now appear to be the real driver behind the push for the new system.

According to a recent European Commission (EC) document, Europe anticipates total economic benefits of $87.3 billion dollars from Galileo in the first 15 years of operation.

The European Space Agency (ESA) and the EC are leading research on the project. The ESA studies are focusing on the satellite constellation and its ground support, while the EC's are looking at the market for the system and what it will take to operate it.

Alcatel Space of France and Alenia Aerospazio of Italy will lead contractor teams with over 50 firms working on the program. Companies working on the teams include RACAL and Matra Marconi Space, both of the U.K.; DaimlerChrysler Aerospace AG of Germany and Sextant Avionique of France. The lead contractor for ESA is Alenia while the lead for the EC is Alcatel. The availability of financing is a key issue on whether or not to proceed with the project.

The total cost for Galileo is estimated to be between $1.9 billion to $2.9 billion. Two types of satellite fleets are under study. The first would consist of 21 satellites in a mid-Earth orbit (MEO) and three in geosynchronous (GEO) orbit, which may use signals from GPS. The second would have 28 satellites in MEO and eight in GEO.

The EU expects industry to eventually operate Galileo and to pay for about half of its development. Part of the study work now being led by Alcatel Space is to design a system that can operate profitably.

The biggest challenge facing the project is to find the best tradeoff between the cost of the system and what users want, said Olivier Colaitis, vice president of strategy, research and development at Alcatel Space.

One way to generate revenue would be to place taxes on the sale of satellite navigation equipment. These fees might be placed on imported U.S. GPS equipment as well as European equipment, a prospect that has alarmed American companies.

The EU also is looking at charging fees for Galileo's services, setting it apart from the U.S. GPS, which does not charge for service. Though details are still being studied, it appears that the lowest level of service -- roughly equivalent to GPS today -- would be provided for free. There would be two other expanded levels of service for which users would have to pay.

European companies appear nervous about whether Galileo could compete with GPS if they have to charge for the European system. At a recent conference in Washington, Pierre de Bayser, senior vice president of marketing and sales at Alcatel, said that the EU would have to spend government money to develop a system that was at least on par with GPS before European industry would invest in it.

Besides working out the finances, the Europeans face a number of other hurdles, including finding broadcast frequencies that can be used by Galileo. The EU is considering using frequencies already used by GPS and a smaller Russian satellite navigation system called GLONASS.

To use those same frequencies, the Europeans would have to get the U.S. and Russia to agree to share. Talks to arrange this began last October.