Negotiations are set to intensify next week on the price at which Telecom Eireann shares will be floated on the stockmarket.

Taking their traditional approach, Department of Finance officials are holding out for a relatively high price, while the Minister for Public Enterprise, Ms O'Rourke, will argue for a lower price level, to give a stronger early gain to investors. The decision is likely to come down to whether the shares will be floated on the market at around £2.95 - the middle of the price range indicated by the Government - or a price over £3 - with £3.10 seen as the absolute highest level.

Most ministers are expected to favour a price towards the middle of the range, which would be likely to give a strong gain to investors on the first days of trading.

Telecom management is also likely to favour a price A final decision on the price will not be announced until July 7th, a day before the shares list on the international markets. The level set will depend to some extent on stockmarket conditions and on the demand from investors.

No figures have yet been realised on the demand from the public for shares, with a flood of final applications expected on Monday and Tuesday and right up to the deadline of 4 p.m. on Wednesday. The initial indication from major institutional investors is understood to be strong, though it will be next week before these firm into orders.

The Government has set an indicative price range of £2.64 to £3.27 for the share price, which translates into €3.30 to €4.15. The middle of this range would be £2.95 (€3.75).

Davy Stockbrokers, in an update on the flotation, says that this mid-price would leave the shares on a price to earnings (P/E) ratio of 31.9 for the current year, versus 34.3 for the European sector.

Davys also calculates the P/E figures excluding rationalisation costs - on the basis that this costs will not recur in the long term - which increases earnings and lowers the P/E ratio to 25.9 for the current year.

Davys says that on the basis of Telecom's profits outlook and early demand for the stock, the shares could rise to €4.15 to €4.20 (£3.27 to £3.31) in the short term and have scope for further gains in the longer term. An initial rise to, say £3.30, would mean a gain of 12 per cent to investors if the shares were sold at £2.95, but just 8 per cent if they went at £3.05. On this basis, the Government may well plump for the lower figure.