Eircom shares have surrendered the last of the gains made on the back of talks with Vodafone amid growing fears that the deal to sell Eircell is floundering.

The shares fell another 5 per cent yesterday to close at €2.78, just three cents above the €2.75 level they enjoyed in the second week of October, before news of the Vodafone talks emerged. Earlier in the day they had fallen even further to €2.67 before recovering.

The main stumbling block remains the relationship that will exist between Eircom and Eircell after the deal. Vodafone wants Eircom to agree not to seek a third generation mobile licence and instead maintain a link with Eircell.

The situation became even more complex yesterday when it emerged that Eircell was seeking a licence that would allow it compete directly with Eircom after the demerger. The bulk of the sell-off took place in London where more than 5.5 million shares changed hands, indicating that many UK-based investors who bought on the back of speculation about the Vodafone deal are now getting cold feet.

Eircom had originally been expected to announce the sale in the middle of this month, along with its interim results, but the deadline has now slipped. Insiders were adamant last night the talks were still on track and Comsource, the largest shareholder in the company said it was not responsible for the delay. Sources close to the Dutch-Swedish joint venture, which owns 35 per cent of Eircom, said they were attaching no conditions to their support.

KPN, which owns 21 per cent and Telia which owns 14 per cent, had earlier been keen to try to exit Eircom entirely as part of the deal.

Vodafone shares were up slightly in London, closing at 244.5p sterling. Under the deal that has been proposed the British group is expected to pay for Eircell in an all paper transaction valuing Eircell at €5.1 billion.