Telecom Eireann will have to pay £2.75 million for Indigo, one of Ireland's largest Internet service providers. The deal is expected to be signed off within the next week.

It is understood that the deal has been notified by the parties to the Competition Authority. The £2.75 million figure is considerably higher than previously reported. The move will make Telecom, which also runs its own Internet Service, Tinet, the second largest Internet provider in Ireland. It means that state companies are now the biggest providers of Internet services in Ireland.

Indigo is not making profits, but has 9,000 subscribers, according to industry sources. It is said to have a staff of around 60.

Telecom's own Internet service has 6,000 subscribers and the telephone operator is said to be buying Indigo for its customer base. Another major attraction for Telecom is that it will not be faced with high connectivity costs. It is not known if Telecom will merge the two companies officially. Sources pointed out that the Indigo brand name was a good one.

Indigo's biggest shareholder is the family of Mr Shay Moran. He acquired Indigo from the Moyna family last year. He owns 46 per cent of the company. Two other investors have 15 per cent and 5 per cent. Mr Richard Nash of Nash's Mineral Water owns 4 per cent.

Standard Life owns 20 per cent of the company while clients of Davy Stockbrokers have 9 per cent. A share issue by the company last year raised £1.6 million.

Ireland On-Line was bought earlier this year by Postgem, a subsidiary of An Post. It claims to have around 30,000 subscribers, or 60 per cent of the market.

Several parties are understood to have considered the possibility of buying out Indigo in recent months.