Eircom made pre-tax profits of €31 million in the three months to the end of December 2004, compared to a loss of €62 million reported a year earlier.

Tight cost control enabled the company to report third-quarter results yesterday in line with analysts' expectations, despite a slight dip in turnover.

Eircom made €401 million revenue in the quarter, compared to €402 million in the same period in 2003.

The firm, which owns the telephone wires that run into almost every home in the State, indicated that it was confident that it would be able to re-enter the mobile phone market by spring 2006 at the latest.

Eircom's chief executive, Dr Philip Nolan, said the firm was proceeding with talks with mobile firms to set up a "virtual operator", whereby Eircom would use its mobile network to offer people its own branded service.

He said if the current negotiations failed, Eircom could use a "backstop option" to piggyback on the network of the third-generation licence holder, Hutchison 3G Ireland, by 2006.

Under its mobile licence, it would have to allow "virtual operators", he said.

Eircom is preparing to spend €30-€50 million setting up a "virtual operator" and is already conducting trials on integrating fixed and mobile technology on a single handset.

Despite flat fixed-line revenue growth during the third quarter, Eircom reported a 3 per cent rise in core earnings before interest, tax, depreciation and amortisation (EBITDA) to €465 million.

It reported earnings per basic share of 2 cent in the third quarter, up from a loss of 13 cent in the same quarter of 2003.

The firm said it was accelerating its ongoing reorganisation programme and had reduced its headcount by 499 to 7,444 since March 1st, 2004.

Since this date it has taken a restructuring charge worth €59 million.

A breakdown of the results show that, in the nine months to the end of 2004, Eircom experienced a €54 million fall in voice and data traffic when compared to 2003.

Some of this was compensated for by increases in telephone line rental charges and an increase in DSL subscriptions. Eircom generated an extra €26 million from line rental and an extra €28 million from DSL subscriptions.

But generating additional revenue from these areas will be tougher in 2005 with no planned increase in line rental fees and slower DSL growth.

Asked if Eircom was planning to increase telephone line rental charges, Dr Nolan said he had not decided what to do about it.

"We certainly have the option to do it... but who knows," he said.

Eircom now has 117,000 broadband subscribers, having added just 3,000 since the start of the year.

The firm is experiencing tough competition in the market. It lost 73,000 customers in the nine months to the end of 2004. It now has a 71.5 cent share of all fixed-line traffic in the market.

Ms Tricia McEvoy, analyst with NCB Stockbrokers, said the results were in line with expectations and it would maintain its price target of €2.10 on the stock.

Shares in Eircom closed down 3 cent at €1.96.