Mobile phone companies may have to reduce call charges under a radical new plan proposed yesterday by the telecoms regulator.

Ms Etain Doyle, who last year criticised the high cost of mobile calls in the Republic, is proposing to introduce a price cap on mobile firms for the first time.

The price cap, which was applied to fixed-line telecoms services provided by Eircom in January 2000, could cut the cost of making calls to and from mobiles phones from 2003.

The plan, which was outlined in a Review of the Price Cap on Certain Telecommunications Services yesterday, proposes to impose a cap on calls made to and from mobiles, and between fixed-line telephones and mobiles.

The price cap would only apply to companies designated as having dominance within the market, currently Digifone and Eircell Vodafone.

It would probably operate in a similar manner to the cap which was imposed on Eircom from January 2000 which forced the firm to reduce its overall charges by 8 per cent per year in real terms.

The regulator's review document states that mobile phone prices were not capped at this time because it was not appropriate. It now concludes that the market has evolved and the director "believes it appropriate that mobile telephony should be included as part of the review at this stage".

The proposals will face strong opposition from mobile firms saddled with massive debts. They will also have to pass a consultation with the telecoms industry.

A Vodafone spokeswoman said the proposals had significantly undermined the business case for third-generation mobile licences and the company was perplexed by the motivation of the regulator.

"It can only serve to undermine the business plans of anyone preparing to bid [for the licences which would offer multimedia service on mobile handsets], and the commitments they are prepared to offer," she said.

But the plan will be strongly supported by fixed-line operators who have consistently complained about the high fees which mobile firms charge them for terminating traffic on mobile networks.

Meanwhile, the review published yesterday shows that Eircom has reduced the cost of local and national calls by more than 30 per cent over the past two years, a figure well above the 8 per cent year-on-year requirement.

But in the same period, it has increased the cost of line rental by 15 per cent and its directory enquiry service by 75 per cent.