Esat Telecom is to seek an investigation into interconnect rates for Internet access as well as other premium telephone services. Interconnect is the rate which Telecom Eireann charges other operators to deliver calls.

It is a crucial issue for Telecom's competitors, because they maintain that if the rates they are charged are competitive then they can pass more savings on to customers.

Telecom Eireann announced a series of reductions in its interconnect rates last week and now claims to have the third-lowest rates in Europe. However, yesterday Esat chief executive Mr Sean Corkery claimed Internet charges were still far too high. "We do not have a competitive Internet interconnection rate," he said.

Mr Corkery warned this would act as a serious barrier to developing e-commerce unless Telecom reduced its prices to competitors. He said Telecom was offering competitors a voice interconnect rate of approximately 0.8p per minute and a similar rate for Internet. However, he said Telecom was charging its own customers a retail rate of about 1.27p on Internet and 3.27p on voice.

This, he said meant Telecom's competitors had very little margin on which they could charge their own customers for Internet services. He said the interconnect rate for the Internet should be about 0.32p. Although welcoming last week's other interconnect reductions, Mr Corkery said the rates for interconnecting on freephone, directory inquiry and premium services were still far too high. He confirmed Esat would be raising the matter with the Director of Telecommunications Regulation. Mr Corkery said the Republic needed to move from a "benchmark" position of being among the top three cheapest European states for interconnect rates to "best in the class". He said the cheapest rate was in the UK - half what was currently offered in the Republic. Mr Corkery said Esat had fought vigorously for four years on the issue of interconnect rates. The company brought its case to the EU and a decision on the matter was due next week.

The EU is expected to find in favour of Esat and to impose a fine on Telecom.

Mr Corkery reiterated Esat would pursue Telecom through the courts for consequential damages, once the ruling was issued. He said a fine on Telecom would not redress the damage inflicted on Esat. Mr Corkery was speaking after an address to a conference in Dublin on Irish telecommunications.

Telecom chief executive, Mr Alfie Kane, told delegates Telecom had reduced prices by £340 million in the last four years. He said these would continue to fall and pledged Telecom would be a "price-reduction leader".

The regulator, Ms Etain Doyle, told delegates interconnection costs were a very significant part of the costs of a new entrant and would remain so until they built their own infrastructure.

She said her office had devoted a lot of time to getting the rate right. "We will need to constantly monitor the situation until such time as an alternative market for interconnection services develops," she said.

The Minister for Public Enterprise, Ms O'Rourke, who opened the conference, said the Government would decide shortly how much of its stake in Telecom Eireann to sell. The Heads of a Bill to facilitate the sale, which is expected to raise £1 billion, will be ready before Christmas.

MCI WorldCom chief executive, Mr Sean Melly, said international traffic out of Ireland only accounted for 2 per cent of telecoms traffic out of Europe.