TALKS ARE set to get under way on a management change at Eircom's owner that sources believe could lead to the telecom company's sale.

Kerry Roxburgh, chairman of Babcock Brown Capital Ltd (BCM), the investment fund that owns Eircom, has written to its shareholders saying that it has agreed ground rules for talks on ending its management deal with Australian Bank Babcock Brown.

The end of this relationship would leave BCM as a standalone investment company, responsible for its own management, and industry sources say the move could ultimately result in Eircom's sale.

BCM's value has slipped by 28 per cent this year.

Babcock Brown owns 8 per cent of the fund, which holds a majority stake in Eircom, the Republic's dominant telecoms company.

Institutional investors own the other 92 per cent of BCM, which has its own board and independent directors.

Under the terms of a deal between the pair, Babcock Brown manages the fund, but last month it announced that it intends winding down the division that is responsible for this.

Mr Roxburgh's letter tells shareholders that BCM's independent directors have "agreed detailed protocols" with Babcock Brown to govern talks dealing with the possibility that the fund would take responsibility for its own management.

A Babcock Brown spokesman told The Irish Timeslast night that the talks will deal strictly with the "internalisation of management" at BCM, and no other issues.

He added that any attempt to predict the outcome of the discussions would be speculation.

Reports yesterday suggested that former BCM director Rob Topfer, the financier responsible for the purchase of Eircom two years ago, could return to the fold if the management deal with the bank is ended.

Mr Topfer recently confirmed to The Irish Timesthat BCM had looked at the possibility of selling the Irish telecoms company over the last two years, but stressed that it was not now on the agenda, as it is unlikely to get value for the business in the current market.

However, sources close to Eircom believe the fund could sell the company if it were to take over its own management.

An employee share option trust owns 35 per cent of the company, and would have a major influence on any future ownership plans.

BCM last year paid Babcock Brown €20 million in management fees last year.

The figure was based on the value of the fund's tangible assets.