The Government may cancel a €30 million per year internet and data services contract with Eircom and seek a new supplier in an open public tender.

The Department of Finance confirmed yesterday that it was reviewing the terms of its exclusive contract with Eircom, which is due for renewal in May.

The review will take place against a backdrop of Government anger at Eircom's pricing strategy and a belief that the State's purchasing power should be used to promote competition.

The Minister for Communications, Mr Ahern, told The Irish Times yesterday that the State was one of the biggest users of telecoms services and should use this to promote competition.

His comments follow his decision to direct the communications regulator to force Eircom to provide a viable "single billing" product to rivals by March 31st.

This should enable competitors to offer line rental products to residents for the first time and boost competition in the market.

The chairman of the Oireachtas Communications Committee, Mr Noel O'Flynn, also called on the Government to spread its business to Eircom's rivals to assist competition.

"About 90 per cent of all Government business is with Eircom and I am of the view that it is time that some of this business is moved to other firms," he said.

The Department of Finance will decide finally on whether to cancel or extend the contract within two months following an analysis of its operation and cost.

The loss of any signficant contract may have to be communicated to any potential investors in flotation documents published by Eircom - if the firm proceeds with its plan to undertake an initial public offering.

Meanwhile, a separate Government contract for calls worth about €100 million per year is due to be reviewed in May 2005, under the Government's controversial policy to centralise telecoms purchasing to save cash.

The policy, agreed by Government in early 2002, pulled all Government and public organisations' telephone and internet bills into contracts with only Eircom and Vodafone. A Finance spokesman said yesterday that the data contract with Eircom was extendable on a yearly basis until 2007. But the operation of the data elements of the State's telecoms contract was being reviewed. Finance agreed the single contract to get the best possible price for telephone services.

But this decision has been criticised because it did not promote competition in the Irish market.

Mr O'Flynn said it was important that the Government moved some of its business onto the new State networks, which are being built around 19 towns. It should also consider moving some of its business to the ESB's new national fibre backbone telecoms network, he said.

Mr Peter Evans, a director at Esat BT, said the firm would strongly encourage the Government to open the internet contract up to a new tender. Eircom would not comment on the review when contacted.