O2 Airwave led one of the five groups selected by the Department of Finance to bid for the contract following a pre-qualification procedure earlier this year.

Airwave already operates the world's largest secure digital radio network for the Metropolitan Police in Britain and was expected to be one of the front-runners for the 10 year contract.

A spokeswoman for Airwave said that the company has decided not to proceed with its bid for the Garda contract because of the onerous conditions attached. "After much deliberation, O2 Airwave has decided that the National Digital Radio Services contract for the Republic of Ireland does not, in its current form, represent an acceptable balance of risk and reward, " she said.

The conditions outlined in the tender document were demanding and the successful operator was being asked to assume a high level of risk, but the network would still be a commercially viable venture, according to a source close to the process.

The source added that it was not in the state's interest to have a crucial piece of infrastructure such as the emergency services radio network run at a loss by a disgruntled private operator, and that the Department is keen to ensure that the winning bidder will generate a return on its investment.

Following O2's withdrawal, four consortia remain in the race ahead of next month's deadline. The four are: Arqiva, which is a former subsidiary of British cable operator NTL, Eircom, BT Ireland and Rivada Networks, a Galway based firm headed up by Irish entrepreneur Declan Ganley.

Each consortium has a network specialist and an equipment provider. Siemens, Nokia and Motorola are among the equipment players lined up to provide the technology for the digital radio service.

A preferred bidder is due to be selected within eight weeks of the 2 August deadline. That bidder will then have to build a pilot network in north Dublin to test the technology before the contract is finally awarded. One telecoms industry source said each consortium could spend up to 2m on the bidding process.

Building a secure digital network is a priority for the Garda, in particular. The analogue radios currently issued to Gardai are vulnerable to third parties seeking to jam signals or to intercept calls between Gardai using scanning equipment.