ESAT Telecom has initiated discussions with the European Commission about the Government's decision to prevent private phone companies from offering voice telephone services through Telecom Eireann's network and must now decide whether to seek a full Commission investigation.

A spokesperson for the Commission confirmed yesterday that they had been in contact with Esat Telecom. However, the Commission will not launch an investigation into the ruling unless a formal complaint is made she said.

Esat Telecom refused to comment yesterday. The company is currently in the final stages of negotiating - along with its joint venture partners - a licence to operate the second mobile phone licence. Esat Digifone, which is 40 per cent owned by Esat Telecom, expects to sign the licence with the Government within two weeks.

The nature of the formal complaint would dictate which aspect of EU competition law and which EU directives the investigation would be conducted under explained the spokesperson. Earlier this month the Government wrote to Telecom Eireann instructing it not to provide new circuits to private phone companies that compete with it for voice traffic. Companies such as Esat Telecom and its competitor TCL use autodialers or routers which automatically divert long distance and international calls made by their customers to their networks, via Telecom Eireann's network.

Esat Telecom claims to have in the region of 1,000 corporate customers, while TCL has over 300. Private operators say that their services are up to 25 par cent cheaper than Telecom Eireann for international and long distance calls.

TCL hopes to increase its customer base to 1,000 by the end of the year, while Esat is planning a major expansion, funded in part by a £30 million fund raising in the US market.

The outcome of an any Commission move could affect investigation the Government's plans to seek a strategic partner for Telecom Eireann. The Government is about to commence negotiations with two European groups that have bid for 35 per cent of Telecom Eireann - Tele Danmark and KPN/Telia.

The value of this stake would fall if the Commission overturned the Government's ruling.