TELECOM Eireann has appointed London investment bankers Morgan Stanley to advise it on its discussions with employee unions regarding a stake in the State telephone operator.

The company is currently in intense negotiations with the unions regarding a deal which would give employees a share in the company. Telecom's move was described as a "very welcome and significant development" by union sources last night.

The unions want a deal concluded by April 30th. Although the Government has decided to make up to 5 per cent available in return for certain concessions on the telephone company's massive restructuring plans, there is scope for a larger stake, unions are pushing for 14.99 per cent and are prepared to pay full value for it. Such a stake would be valued at around £136 million. The unions have appointed their own US advisers, Keilin & Co, who have advised on worker buy-outs in United Airlines and other companies.

A union source close to the talks described Morgan Stanley's appointment as very significant. "It shows a serious statement of intent and in terms of technical competency on the issue of worker buy-outs, the company is very good," said one source.

Morgan Stanley also acted on behalf of the Government and Telecom during the KPN/Telia negotiations to take a stake in Telecom. The Dutch/Swedish consortium is buying 20 per cent of the company for £183 million and will pay another £200 million for a further 15 per cent under a complex deal.

One source said that the appointment now means that it will be easier for employee negotiators to try to push a deal through. "It is a lot different from dealing with the Department of Transport, Energy and Communications and the company," said the source.

Sources close to the talks differ on how they are progressing. One management source said the talks were reaching a very difficult stage, but a union source said this was not so.

The talks feature a "complex range of issues", according to those involved, and negotiations have been going on for some months. There are five or six negotiating groups involved.

Crucial to the whole deal, known as the Employees Share Option Plan (ESOP), is the one-third reduction in payroll costs which Telecom wants and how that can be achieved. Communications Minister Mr Dukes has said that the Government is open to proposals by staff to purchase for cash shares in excess of 5 per cent, when it is satisfied that this will help the company develop in the future.

The value of the excess may be valued on the same basis as that entered into with KPN/Telia.

Whether the sides agree to a maximum of 14.99 per cent for employees remains to be seen. One employee source close to the talks said the unions would not settle for 10 per cent or less.

An added factor is that the strategic alliance partners will have to agree to the deal.