Southcoast  Community Television will apply for a licence to supply digital television services to 100,000 homes in Cork, Kerry and Waterford next month

The application, which may be replicated by local deflector firms in other regions, could pose serious competitive and technical challenges for rival TV services offered by Chorus and BSkyB.

The application will be submitted by Southcoast following a formal call for expressions of interest for regional licences, which will be made by the telecoms regulator, Ms Etain Doyle. A spokeswoman for the regulator confirmed yesterday these would be made before the end of the month.

If a licence is granted by Ms Doyle, Southcoast Community Television plans to target one of Chorus's core cable markets, Cork city, according to Mr John Hurley, chairman of Southcoast.

"We've had to keep out of Cork city due to exclusivity clauses [in cable operators' licences\] but, with very little extra money, we could provide a choice for these people," he said yesterday.

Southcoast currently offers analogue television services to 11,000 customers but plans to raise cash to fund a digital system that could reach about 100,000 homes in Cork, Kerry and Waterford.

Next week at Southcoast's annual general meeting, the management will propose changes to its structure to enable it to offer shares in the firm to customers who invest in its digital plans.

"Present customers will be able to invest in Southcoast," said Mr Hurley.

"People who buy a minimum amount of shares will also get a free television service."

Mr Hurley estimates the cost of providing a digital TV system would be €10 million.

The firm has already invested €7 million in technology and conducted trials with MDS International.

According to Mr Hurley, the greatest challenge facing Southcoast will not be financial but is more likely to be slow movement by the telecoms regulator to create a licensing framework.

"We've already submitted a comprehensive licence application with all technical details back in November 2000," he said. "As time goes by we could miss the boat. . . we've been put on the backburner because we are not large."

Mr Hurley said legal action had not been ruled out against the regulator's office if there was a further lengthy delay.

One of the main reasons for the delay in granting licences to local deflector firms will not be a factor by March 1st. Exclusivity clauses in NTL and Chorus's licences will be removed then following a deal struck between the two operators and the regulator over granting price increases for their services. This removes the threat of legal challenges from cable firms, something that occurred frequently throughout the 1980s and 1990s.

A failure by the Government to act against these firms provoked Chorus, formerly known as Princes Holdings, to sue the State for £100 million. It is understood this case has yet to be settled.

The success of local digital TV services would also hit the British satellite operator Sky. The firm recently complained to the regulator that its customers would be "adversely affected" by interference from local digital services.

These services would operate on the 12 GHz band, the same one on which Sky operates. Sky told the regulator that if local firms were allowed to use this band it could lead to interference and loss of service for customers.

But Sky's complaints are unlikely to be given much consideration by the regulator as the firm is not regulated in the Republic.