The acquisition of Meteor has already started to pay dividends for the company, which added 101,000 mobile subscribers to its new mobile division in the three months to the end of December 2005.

The quarterly figures published by Eircom last week are the first to include a full contribution from Meteor and they show the third-placed mobile player in Ireland is starting to gain traction.

To put its growth in context, Vodafone and O2 between them added fewer than 80,000 customers over the same three-month period. While their businesses are more mature and would be expected to grow more slowly, Meteor's dramatic outperformance is still worthy of note, according to Goodbody analyst Neil Clifford. He said the growth was "phenomenal" and that Eircom was "rapidly delivering" on its strategy for Meteor.

Chief executive Phil Nolan said Meteor, with a market share of 14%, was "well under way" to reach Eircom's stated goal of 20%. Eircom's quarterly revenue growth of 6.3%, to 424m, was "largely due to the inclusion of Meteor revenue for December", he said.

Unfortunately for Eircom, that tells its own story about the performance of the rest of the business. Operating profit during the quarter fell 21% to 56m on the same period in 2004, albeit including some one-off restructuring charges.

Even in the absence of those non-recurring items, Eircom's earnings before interest, tax, depreciation and amortisation (ebitda) fell by 7% to 142m.

Like all incumbent network operators, the company is seeing its fixed-line voice revenue whittled away by competition.

At the same time, Eircom is spending to expand its broadband internet business, which the company has flagged as an engine for growth. Marketing and distribution costs were up 43% year on year in the most recent quarter, according to Merrion analyst Brid White. The rollout of broadband and a discount voice package "cost more than we expected", said White.

That is a consequence of some particularly intense competition among Irish telephone companies. European low-cost call giant Tele2, for one, has found the heat too much to take. Tele2 sold its loss-making Irish subsidiary to Carphone Warehouse at the end of last year as it completed its exit from the UK and Ireland.

Those operators still in the market have not found life much easier. Smart Telecom, which has 70,000 fixed-line customers, failed to grow its customer base at all in the first half of 2005, according to its most recent interim figures.

Smart is also facing difficulties in getting its mobile network off the ground, having had its 3G licence withdrawn by the Communications Regulator (Comreg), which says Smart has failed to provide a satisfactory performance bond. Smart denies Comreg's claims and has secured an interim injunction preventing the regulator from offering the licence elsewhere while it awaits a High Court hearing on the decision. Smart will not welcome the distraction.

"The entrant that was showing the most growth seems to have stalled, " said Goodbody's Clifford of Smart, pointing out that Eircom's problems are by no means isolated. It is a dogeat-dog market and all the discounting and undercutting is really eating into margins.

Eircom managed to win back 78% of business previously lost to other providers during the most recent quarter, a record win-back figure for the company. But those customers are clearly coming back at a cost. "The high winbacks are almost an indication that Eircom is being more aggressive, " said Clifford.

Competition in broadband too is intensifying. Eircom has frustrated attempts by Smart, BT and Magnet to expand their service by gaining access to the local loop, the Eircomcontrolled cable leading from telephone exchanges to homes around the country. Without competition in the local loop, though, Eircom is still suffering from price pressure. Resellers of Eircom broadband, including BT, have cut prices to the quick, depressing margins. Providers who don't rely on Eircom's network, meanwhile, including NTL/UGC (cable) and Irish Broadband (wireless) have been cutting their own prices to encourage take-up of broadband.

Eircom still recorded a decent level of new customer wins in the fourth quarter of last year. It had 200,000 broadband customers by 31 December and added another 11,000 in January. It may yet hit Phil Nolan's target of 500,000 by the end of 2007, which was seen as highly optimistic when first floated last year.

Again, the new business is coming at a price. Davy analyst Jack Gorman believes that price isn't going to get any lower. "The market will become more competitive, with new access methods becoming available. We would be concerned about this development, " he said in a research note after last week's results.

Shareholders including Australian investment bank Babcock & Brown, which is reportedly lining up a bid for Eircom, will no doubt share that concern. For the time being, investor returns appear to depend either on a bid or on Meteor continuing to deliver stellar performance.