Operating profits at Eircom rose by 8 per cent to €74 million in the six months to the end of September.

However, the group reported an after tax loss of €48 million for the period reflecting interest charges, taxation and the payment of a €48 million dividend.

The loss compared with a loss of €426 million for the same period last year when the company paid a dividend of €416 million to private equity firms as part of a refinancing, prior to its rejoining the stock market this spring.

The basic loss per share was 1 cent, compared to 5 cents last time. Adjusted earnings - which strip out exceptional and restructuring costs as well as goodwill amortisation - were 7 cents per share. The shares closed up 2 cents at €1.62.

Analysts yesterday focused on the dividend payment of 5 cent per share which Mr Neill Clifford of Goodbody Stockbrokers said "gives comfort" that the company will honour its commitment to pay an 11 cent dividend in its first year as a public company.

Eircom chief executive Mr Philip Nolan said that despite the bottom line loss, the company was generating sufficient cash at the operating level to cover the dividend.

The accounts released yesterday showed a decrease in net cash of €32 million to €320 million, not including the proposed €48 million dividend. "It is not an issue that concerns us," he said.

"The total cash outflow of €32 million in the first six months needs significant improvement if it [ Eircom] is to meet annual forecasts and allow the company make inroads into its debt levels." according to Ms Brid White an analysts with Merrion Stockbrokers. She added "the debt load combined with the pressures in the telecom market constrains the company's ability to increase this dividend."

Net debt fell from €2.18 billion to €1.95 billion, but Eircom remains highly leveraged due to borrowings taken on during its takeover by a consortium of private equity firms in 2001.

Turnover fell from €825 million to €802 million reflecting an 11 per cent fall in voice and data traffic due to competition and some tariff reductions. It was offset by a 13 per cent increase in line rental and other "access costs". The company highlighted increased turnover from its broadband products which have been extensively promoted in the period and exceed targets.

The overall market for fixed line telephone traffic has shrunk by 3 per cent year on year and within that Eircom's share has fallen by 5 per cent to 73.4 per cent.

Mr Nolan said that he expected broadband to be the key driver of revenues in the future, along with a re-entry to the mobile market.

Mr Nolan said that the target of 500,000 broad band customers by 2007, which was announced yesterday was "an important step towards building Eircom's future as a digital communications company".

Eircom sold its mobile business to Vodafone in 2000 and the non-compete agreement it entered into at the time has now expired.