EIRCOM CHIEF Rex Comb has signalled that the rapid expansion of its mobile arm Meteor is likely to lose pace in the coming months as its fastest-growing unit bears the brunt of recession.

The slowdown comes as Babcock Brown Capital (BCM), the Australian fund that controls Eircom, examines whether a sale of the fund or the telco is feasible in the current market. Mr Comb offered no comment on that as Eircom reported a 2 per cent drop in earnings to €169 million in the first quarter of its fiscal year, a decline he attributed to the "deteriorating economic environment".

Although BCM's ultimate parent, investment bank Babcock Brown, may be placed into receivership this week, Mr Comb did not foresee "anything drastic" arising for Eircom if that happened. Babcock's associates held 7.9 per cent of Eircom and the bank was "only the manager" of BCM's assets, he said.

BCM and Babcock have agreed terms to end the management agreement, but termination of the deal is subject to the approval of BCM's investors. If Babcock went into receivership, Mr Comb indicated that the receiver would provide accounting and other back office services to BCM in the first instance at least.

Eircom's revenue dropped €1 million to €513 million in the three months to September. The firm had "cash-pay" debt of €3.75 billion at the quarter end and the number of broadband subscribers reached 614,000, up 124,000 year-on-year.

Meteor's earnings before interest tax depreciation and amortisation (Ebitda) rose 2 per cent year-on-year to €29 million but Ebitda profit margins fell one percentage point to 23 per cent.

A net increase of 19,000 mobile subscribers in the quarter brought the total number above one million for the first time, up 94,000 year-on-year. Still, Mr Comb said such growth was not sustainable. "It's not going to continue growing in the way that it has done in the last 12 months."

After management fees and fair value adjustments, Ebitda in the fixed line unit fell 3.5 per cent to €140 million. Mr Comb expects the fixed line unit to achieve earnings of €145-€150 million in the second and third quarters. Such earnings would roughly equal earnings in the same periods last year, but Mr Comb agreed that any further significant deterioration in the economy would have an impact on the firm.

Eircom will introduce wireless broadband services in Dublin and Cork early in the new year.