Eircom has made approaches to its banks, asking whether they will provide new credit lines to fund the development of a third-generation (3G) mobile system.

Entry into the 3G arena would require significant capital expenditure in addition to the €114 million cost of acquiring a licence to provide such a service.

The 3G market remains in an early phase of development, so such an investment would be regarded as a long-term play with little prospect of a short-term profit.

The dialogue between Eircom and its banks comes as the telco debates whether to accept an offer of the State's final 3G licence from ComReg, the sector regulator, which initially awarded the licence to the troubled Smart Telecom.

In a decision later upheld by the High Court, ComReg withdrew Smart's licence in a dispute over draft performance bonds for €100 million.

With ComReg's deadline looming, a decision from Eircom's board is believed to be imminent. Given the expenditure involved, the company wanted first to examine its options for financing such an investment.

The decision will be seen as an indication of Eircom's strategic direction under the stewardship of chief executive Rex Comb and executive chairman Pierre Danon. Eircom's failure to secure the final 3G licence on its first attempt meant that the development of such a service was not included in the financing arrangements put in place by Australian fund Babcock & Brown when it acquired the telco last year.

Thus new financing arrangements would have to be put in place if Eircom opted to accept ComReg's offer. The group would have to make an upfront payment of €44 million to secure the licence, with payment of a further €70 million spread over 15 years. The alternative would be to "piggyback" on the system of a rival 3G operator with a mobile virtual network operator deal.

Eircom is also considering the commercial merits of starting a 3G service in a market in which it is unlikely to turn in a profit for many years. However, failure to accept the offer might limit the long-term growth potential of a mobile business, which is crucial to Eircom's business strategy. This is an important consideration, as continued rapid growth of Eircom's mobile arm, Meteor, is crucial to the business strategy of Babcock & Brown.