The Competition Authority will carry out a full regulatory investigation of UGC's proposed acquisition of the cable company NTL Ireland, it said yesterday.

The inquiry, which may not be completed until early December, will focus on whether the proposed acquisition of NTL by the European cable TV operator UGC would lessen competition.

UGC, which is owned by Liberty Global - a US firm that owns a wide range of broadband and content interests - intends to merge its existing Irish cable firm Chorus with NTL Ireland to create a national cable company.

Under a complex warehousing deal agreed in May 2005 UGC agreed to pay its own bankers Morgan Stanley €329 million to buy NTL Ireland on its behalf and hold it in trust until the deal cleared competition regulators.

The warehouse structure enabled Morgan Stanley to pay NTL Ireland's ultimate owners, NTL Group, the €325 million asking price for the firm without a delay.

The lengthy investigation by the Competition Authority into the deal is proving costly for UGC, which must pay Morgan Stanley an extra €150,000 per month until the deal is passed.

If the competition investigation runs until December 2005 as the Competition Authority signalled was possible yesterday, this would cost UGC an extra €900,000 on top of the initial €4 million fee to Morgan Stanley.

However, any decision by the Competition Authority to block the acquisition could cost UGC substantially more as it has indemnified Morgan Stanley against the deal falling apart.

Under these circumstances it is likely Morgan Stanley would sell NTL Ireland to the next highest bidder and seek compensation from UGC if it can't match the original €325 million price.

The Competition Authority has asked interested parties to make submissions on the deal.

It also indicated that the Minister for Enterprise, Mr Martin, will have 30 days after completion of the investigation to either allow the merger to go ahead, ask for specific conditions to be imposed on the merger, or block the deal.

A spokesman for UGC said: "We are very confident that the transaction will be approved and that we are working closely with the competition authorities to give them all information necessary to assess the case."

UGC's proposed takeover of NTL Ireland has raised concerns from some rivals that the firm, which is controlled by the US entrepreneur John Malone, could use its shareholding in News Corp (owner of BSkyB) to distort the market for premium content.