Losses at Esat Telecom Group this year will be higher than previously expected, according to the telecommunications group's own brokers. Davy is forecasting that the group will lose £43 million, compared to its previous forecast of £36.6 million. However, the brokers believe that Esat, which provides alternative telecommunications services, is on course to turn a pre-tax profit in the year 2000. It also believes that Esat Digifone, in which Esat has a 45 per cent stake is on course to generate revenues of £27.6 million this year, almost £8 million more than its previous forecast.

Davy puts a valuation on the Esat Telecom group of between £212 million and £239 million, equivalent to between $16 and $18 a share. This valuation, compares with the current price on the Nasdaq market of $13.75.

Davy says that Esat Telecom will lose £38 million next year, compared to its previous forecast of £36.3 million.

The brokers have revised their forecasts on foot of several developments, including the recent price cuts on inland long distance calls by Telecom Eireann. "The size and scope of these cuts is greater than expected and when combined with international outbound calls [reductions announced last April] are likely to have a significant impact on Esat's profitability over the next two years."

Davy says the revenue per billable minute will decline, but will not be matched by any reduction in access and termination charges - the part of the call that must be carried by Telecom. "For as long as Telecom Eireann refuses to give the company an interconnect rate margins will be squeezed."

Last November, the European Commission gave Telecom two months to reply to a statement of objections in which the Commission accused Telecom of abusing its dominant position by charging other telecoms operators too much for handling their calls.

Davy argues that Telecom's latest price cuts actually strengthens Esat's case for an interconnect agreement. "By cutting its prices in the areas where it faces competition and maintaining high rental and usage charges for residential customers, Telecom is effectively engaging in cross-subsidisation," according to Davy. "Moreover, by charging a very high rate for network access it is stifling competition which is likely to be viewed as an abuse of its monopoly position," it says.