British Telecom (BT) is expected to buy out Telenor's 49.5 per cent interest in mobile operator Esat Digifone for a figure in excess of $1.1 billion (€1.1 billion). The move would mean Digifone could be reversed into Esat Telecom (which holds the fixed line and Internet businesses) to create one large competitor to Eircom.

Talks between BT and Telenor on the future of Digifone continued late last night. An announcement, detailing a resolution of their differences, is expected shortly. The two sides have been trying to reach agreement on BT's contention that it owns 1 per cent of Telenor which it bought from IIU, the investment vehicle of Mr Dermot Desmond.

This would give it a 50.5 per cent controlling interest in Digifone if its $2.4 billion offer to buy Esat Telecom Group is accepted by shareholders, generally seen as a foregone conclusion.

Telenor and BT began talks on the Digifone issue on Wednesday, shortly after BT's offer for Esat had been accepted by the Esat board.

It is understood that Telenor set a midday deadline for an acceptable resolution. Otherwise it would pursue the matter in the High Court.

Telenor International's managing director Mr Morten Sorby told The Irish Times last week that his company did not believe IIU could sell the 1 per cent stake to just anyone. "We have good strong pre-emption rights," he said.

Other sources believed otherwise. They felt IIU could sell its stake to anyone not already involved in the mobile phone business in the State. BT is involved in the telecoms business through Ocean, a joint venture with the ESB, but it does not provide mobile phone services.

It was this issue which provided the focal point for talks between the two sides. As the talks continued, observers said it was increasingly unlikely that the issue would end up in legal proceedings. "Big companies have a way of resolving these things," said one source.

BT and Telenor are partners in telecom operations in Germany, Switzerland and Sweden and, as such, they enjoy a cordial relationship.

However, BT's swoop on Esat took the Norwegians by surprise. Understandably upset at having their $85 per share offer trumped by BT's $100 offer, the company wants a favourable resolution and one which will allow it to save face.

Esat shares closed at just over $97 on the Nasdaq last night although the volumes were relatively small.