The prospect of a bidding war for the rump of Eircom after the sale of Eircell could be good news for Eircom shareholders. With Sir Anthony O'Reilly now in the frame along with entrepreneurs Mr Denis O'Brien and, possibly, Mr Dermot Desmond, Eircom should be able to maximise the value of its fixedline assets for shareholders if the business is to be sold. But the downside of selling the business now is that Eircom shareholders will not benefit from any increase in the currently depressed market prices for telecoms shares.

Each bidder will bring its own agenda to a deal, primarily concerned with securing a good return for stakeholders in the bidding consortium. They will only proceed with a takeover deal if they can see clear profit potential for their consortium.

All of the consortiums, which include venture capitalists and private investment funds, will already have identified potential opportunities to save costs, streamline the business and increase revenue. For any buyer the conditions involved in the deal will be just as important as the price agreed.

Because cost savings will mean job cuts and increased efficiency, conditions restricting the ability to achieve these savings would make Eircom less attractive to bidders. The power of the Employee Share Ownership Trust to set limits through its 15 per cent stake could be a crucial factor.

If, as is expected, a majority of Eircom shareholders vote in favour of the demerger of Eircell and its sale to Vodafone, the board of Eircom will be cleared to negotiate the best offer it can get for the rump of the business.

In the frame now are three possible bidding consortiums: Former Esat Telecom chairman Mr Denis O'Brien is leading the eIsland consortium, whose €2.2 billion (£1.73 billion) offer was rebuffed by the Eircom board last October. Financier Mr Dermot Desmond is understood to be interested through his International Investment and Underwriting operation. Sir Anthony is chairing a consortium backed by Mr George Soros, Providence Equity Partners, Warburg Pincus and Goldman Sachs, which is reported to be making a €2.6 to €2.7 billion offer.

What do the consortiums see in Eircom after Eircell and how will they make sure it is a good investment?

Eircom (post-Eircell) will consist of a profitable fixed-line telephone business with a dominant position in its domestic market and a small new media business. But the fixed-line business is facing an increasingly competitive market, and revenue growth and operating profit margins are coming under pressure.

In a depressed market for telecoms companies, analysts are valuing Eircom (post-Eircell) at around €1 per share. Mr O'Brien's eIsland consortium has made an indicative offer of €1.10 per share, while the O'Reilly consortium bid is understood to be between €1.18 to €1.23 per share, depending on the treatment of Eircom debt.

Merrion analyst Mr John Coolican said the reported bid levels are around the mid-levels of valuations for the fixed-line operations of other telecoms companies. At these bid levels he said the buyers would not be buying Eircom's assets at knockdown prices, through there is the argument that since all telecoms assets have fallen with the markets, a successful bidder would automatically get the upside of recovery in the market.

At least part of the logic of a bid at €1.10 to €1.20 per share must involve taking a view on current market valuations for telecoms. Bidders could aim to make their return from an increase in market valuations for telecoms and maybe even a bid from an international operator in 12 to 18 months' time.

In the meantime a successful bidder could aim to drive up the value of the business through cost-cutting. Analysts suggest that bringing Eircom up to European efficiency levels would involve job cuts well in excess of the 3,000 already proposed by Eircom as well as changes in the culture of the organisation, including pay scales based on length of service.

A bidder seriously interested in expanding Eircom's revenue could look at developing a broadband strategy but this would involve significant cost versus returns risks.

For bidders the pressure to sweat assets to get a payback on the deal will be influenced by the structure of their funding. The higher the level of debt in the deal the greater the financial risk involved and the pressure to drive operating profits.

But while debt drives up financial risk, it is less costly than equity. The extent of debt allowed in any deal will be limited by conditions set in the Eircom/Vodafone deal - Eircom net assets cannot fall below €500 million for two years.

With no formal bid on the table Eircom shareholders face an execution risk - the bidders could walk away and the Eircom shares would fall. Eircom shares closed four cents stronger at €2.69 yesterday. In coming weeks shareholders will have to weigh up the likelihood of a deal against the movements in the market price of Eircom to assess whether to sell now or wait to be bought out by a bidder.