Businesses and consumers face the first increase in telecoms prices in several years following a decision to raise the cap on Eircom's prices.

Telecoms regulator Ms Etain Doyle is expected to publish the details of her decision to raise the cap today which could allow prices rise by 4 per cent on average next year.

The move follows significant increases in the cost of other public utilities such as electricity and cable TV, and could put upward pressure on inflation rates.

Ms Doyle is scheduled to announce a significant relaxation of the retail price cap on Eircom's telecoms prices, enabling the firm to raise consumers' call and line rental prices.

Currently Eircom must cut the price of a basket of telecoms services by an amount set at a formula of the consumer price index minus 8 per cent. With the inflation rate at about 4.5 per cent this forced it to reduce prices by almost 4 per cent annually over the past three years.

But it is believed Ms Doyle will set a new formula today. This will enable Eircom to raise prices on a basket of services in line with the consumer price index, or slightly below this rate. This suggests price rises of around 4 per cent.

The price cap relaxation is a significant victory for Eircom which has lobbied hard on the issue to enable it to boost revenues to fund investment. It is understood Eircom will increase the cost of line rental in 2003 to reduce an access deficit - the difference between the cost of maintaining its network and the money it generates from line rental on its network.

Eircom's most recent regulatory accounts results show its access deficit was €189 million in the year to March 2002.

Yet, despite the previous price cap, Eircom increased line rental prices to €19.60 in 2002, up from €15.70 in 1999. It did this by dramatically cutting call costs. This put severe pressure on Eircom's competitors.

This is believed to be one of the main reasons the regulator will relax the price cap. It is also hoped Eircom will maintain investment in its core network if offered a reasonable return.

But the rise in telecoms bills next year will disappoint consumers who were told last week by Eircom that call costs would fall by 20 per cent.