Telecom Eireann could be worth up to £4 billion when it floats on the stock market next year, a new report has forecast. It also predicts that the semi-state company's revenues will continue to grow at 14 per cent for the next five years.

The report, by brokers ABN-Amro, also estimates that the price of mobile phone tariffs will drop by around 10 per cent a year and that Eircell had sales of £174 million in the year to last April.

Earlier this year, the Government announced that it would float part of Telecom Eireann on the stock market next year. It is not yet known how much will be offered publicly, but it is estimated that at least 25 per cent will be sold, possibly as early as June 1999.

ABN-Amro has estimated a value of between £3 billion and £4 billion for the company. On this basis it would represent up to 6 per cent of the Irish Stock Market Index, according to the brokers, who are expected to be one of the main bidders to advise either the Government or the company on the flotation.

In the year to April, Telecom had sales of £1.35 billion and operating profits of £241 million. Net profits were £155 million.

The report says the proportion of the population with a phone in Ireland, at 41 per cent, is the second lowest in western Europe. The average is 53 per cent and all of the larger European countries have a higher penetration than Ireland. The report says that penetration should rise by 2.5 per cent a year over the next two years and 2 per cent thereafter. The report emphasises the importance of the recent Employee Share Option Plan (ESOP), whereby employees will get 14.9 per cent of the company in return for a cash payment and changes in work practices. It says it should help reduce the company's costs per employee.

However, it says that, even after the ESOP-related initiatives have been implemented, Telecom will only be half as efficient as its European counterparts on many productivity measures.

ABN-Amro expects Telecom's market share to decline relatively slowly over the coming years, despite liberalisation. It forecasts Telecom will lose 2 per cent of its market next year and 3 per cent a year thereafter.

Eircell's mobile operations are estimated to account for 13 per cent of Telecom's total sales, by ABN-Amro. However, it stresses that the information it has is limited because Eircell does not publish separate accounts. On these figures ABN-Amro estimates that Eircell's turnover will grow at 15 per cent annually over the next five years. The imminent entry of a third operator to compete with Eircell and Esat Digifone (the second mobile operator) should lead to price cuts.

ABN-Amro says the price per minute paid by Eircell customers should decline by 10 per cent a year over the next five years, with price cuts beginning in September.

It also says that current mobile phone charges are broadly in line with OECD figures, but in Scandinavia and Australia they are half what they are in Ireland.