Irish telecoms firm ETel, which operates in Central Europe, has agreed to acquire European Telecommunications International (ETI), the Austrian subsidiary of Spanish firm Telefónica.

The acquisition, which will be announced by the firms shortly, is believed to be a multimillion deal that will involve the assumption of a large portion of ETI's outstanding debt by Telefónica.

The deal by eTel, which was founded by the telecoms entrepreneur, Mr Seán Melly, is the fourth acquisition by the firm in Austria in just over a year. It is expected to boost eTel's annual revenues to more than €100 million during 2002, following takeovers of RSL Austria, MCN and Teracom.

ETI, which was acquired by Telefónica in 1999 for €30 million, offers business, voice and internet services in major Austrian cities such as Vienna, Graz and Linz.

The company is expected to generate up to €30 million in revenue this year and has constructed a 65km metropolitan fibre network in Vienna and other cities.

Telefónica gave notice at its results announcement in May that it was exploring divestiture of its Austrian operations due to "existing difficulties in making the operation profitable".

Like other incumbent telecoms operators throughout Europe, Telefónica is streamlining its operations to focus on profitable businesses. It is believed eTel came across the acquisition opportunity following its extensive search for telecoms opportunities in central and eastern Europe.

The Irish firm is also currently bidding for the central and eastern Europe operations of the failed Dutch telecoms firm, KPNQwest. It is expected to face stiff competition for these assets from other consortia, including one backed by Lehman Brothers.

ETel will integrate ETI's 6,000 customers into its own Austrian operations. It is believed the Irish firm will not assume the majority of ETI's debt which it amassed while building a fibre-optic network in Austria.