ComReg, the communications regulator, has published a consultation paper on a key piece of regulation which will determine the margins that Eircom is allowed to make on its fixed-line business.

The regulatory instrument in question is called weighted average cost of capital (WACC) and it is a key input into the prices Eircom can charge for its regulated products.

A number of semi-State companies in the Republic, including Bord Gais, An Post, the Dublin Airport Authority and the ESB are subject to a WACC. ComReg will use the new WACC as one of the factors it uses to set prices for all Eircom products and services other than mobile.

ComReg said that this was necessary to ensure that Eircom did not obtain too high a price - at the expense of consumers - or too low a price, which would result in it having problems recovering its investment.

Eircom's current WACC is 11.5 per cent. The consultation paper suggests that it should be 7.8-11.1 per cent.

ComReg's preliminary view, before consulting with interested parties, including Eircom, is that "a WACC approximately in the mid-point of the range may be most appropriate".

The European average for telcos is about 10 per cent.

Sources familiar with the industry said that a one percentage point change in the WACC could make a difference of tens of millions of euro to Eircom over the three-year to four-year period during which it will be in force.

"This is a very important review that will either encourage or discourage infrastructure investment in telecommunications in Ireland, and Eircom will be fully participating in the consultation," a spokesman for the telco said.

Eircom has significant plans to invest in both its core network and its customer access network over the next five years in order to deliver higher speeds and new applications such as video-on-demand.

At the same time, the company has presented a plan to ComReg and the Department of Communications for the structural separation of the telco.

This would create a network company which would sell access and services to third parties, including a separate Eircom retail company.

Eircom is understood to want to sell off the retail business, with a major European telco being the most likely buyer.

Eircom continues to be the dominant provider of fixed-line telephony in the Republic and according to the last ComReg quarterly market survey it had almost 70 per cent of the market.