Eircom has invested €20 million in a state-of-the-art data hosting centre in Dublin. The investment marks its first major new-economy venture since a strict cost-cutting programme was introduced earlier this year.

The 30,000 square feet data facility located at Citywest Business Park is expected to become operational next week, and will target Irish companies and multinationals.

Eircom will offer a full range of the managed services required to create, manage and maintain a firm's information technology infrastructure and Web presence.

The opening of the centre comes at a time when the data-hosting industry is in crisis. Two major firms with substantial operations in Dublin, 360 Networks and Cityreach, went bust recently.

Industry experts believe there is little short-term demand for hosting facilities as companies put internet strategies on hold in response to the global economic downturn.

"There is an excess of supply over demand and indications from the UK are that it will be a minimum of 18 months before this business recovers," said Mr Harry McDermott, director of Mason Communications.

"It is likely to be a similar story in the Republic."

Eircom chief executive Mr Alfie Kane said yesterday the firm was "quietly confident" about the future for the venture.

"We are not entering a market at a time when it is imploding. We're actually expanding and deepening our involvement in a market that we see as a real sustainable proposition," he said.

Mr Kane said synergies provided by Eircom's core connectivity business would help it gain customers and offer services. Current scepticism about the new economy was overplayed, he added.

Eircom is in talks with about 20 customers interested in outsourcing at least some of their IT infrastructure to the new facility in Citywest, said Mr Kane.

The data centre marks a new development for Eircom's hosting strategy which, until now, has focused on co-location - providing rack space for servers in existing telecoms exchanges.

Eircom has been in the hosting business since 1997, with established data centres in Internet House, Crown Alley and Dundrum. These centres will continue to offer co-location space.

The company is also evaluating whether it should implement a regional data hosting strategy throughout the Republic, according to Ms Fiona Tierney, general manager of Eircom hosted services. The company could do this relatively cheaply by using its existing telephone exchanges as small hosting centres.

"There are opportunities outside Dublin and we have looked at them," she said. "But are we moving on them today? The answer is no. We're taking a phased approach as the business grows." This could benefit the Government's strategy of developing telecoms and broadband infrastructure in the regions as almost all the major data centre facilities are in the Dublin area.

Although the centre is not yet connected to an alternative telecoms provider, Eircom is keen to enable customers to choose an alternative supplier if they want. Ms Tierney said the company was talking to other global telecoms providers who may be interested in establishing a presence in their centre.

According to analysts, most firms want a "carrier-neutral environment" where they can negotiate deals with a range of suppliers.

Eircom's decision to invest in the internet hosting market follows a period of stiff cutbacks in its new economy ventures. Earlier this year Eircom shut down its digital publishing arm Rondomondo and wrote off significant investments in at least three technology firms - Ebeon, Viasec and Nua.