The Government has indicated it is open to the prospect of Eircom's network business being split from its retail arm in the event of a takeover by the Australian investment fund Babcock & Brown Capital.

Minister for Communications Noel Dempsey has declined to make any comment on the Australian courtship of Eircom, which has already changed hands three times since its privatisation in 1999.

However, executives from the investment fund are known to have made a courtesy call to the Minister's department last month, at which they handed over a document prepared for ComReg, the energy regulator.

Babcock & Brown is known to be considering a break-up of Eircom. In response to concerns that the network would be downgraded after a deal as new owners sought a financial return, its director Rob Topfer has insisted that the fund would prioritise investment in the network.

Sources in Mr Dempsey's department indicated that the suggestion of a break-up was viewed positively inasmuch as Babcock & Brown appeared willing to invest in the network. "The proposal to separate the network and the retail business might be useful and would help speed up the roll-out of broadband," the sources said.

While the Government could not block a transaction, it is acknowledged in Government circles that a private equity takeover with little prospect of significant investment in the network would not be a good thing.

Eircom shares closed one cent weaker last night at €2.20. The company applied yesterday to issue 813,232 new shares in respect of an incentive scheme for its top management prior to its flotation in March 2004.