Esat Telecom is being tipped by a leading London investment bank as a takeover target for British Telecom. Another possible candidate to buy Esat, which is Telecom Eireann's biggest rival, is WorldCom, the US based telecommunications group.

The takeover, which could see a rival company paying up to £250 million for Esat, is being mooted by Credit Suisse First Boston (CSFB) in a research paper on the group.

It says Esat, which is embarking on a major alternative infrastructure building programme, could become an attractive takeover target in the next six12 months. It says that should larger telecommunications companies enter the Irish market "in any significant way", Esat would be a logical acquisition for two reasons.

It says it would provide a company with "an immediate national footprint" and an established customer base. "Secondly, sophisticated operators like BT and WorldCom would know it would not make sense to build out their own networks while leaving Telecom out there with its network and the ability to undercut them on prices, jeopardising their returns on invested capital," says the investment bank, which was one of the underwriters when Esat floated 30 per cent of the company last year on Nasdaq.

Esat, unlike many other international telecommunications operators, has no major strategic alliance partner. Ultimately, industry experts believe the company will need one if it is to compete in the global marketplace.

British Telecom has signed a deal with the ESB to use its infrastructure and is expected to start rolling out its own alternative network early this year. The aim is to target large corporate users initially. Analysts last night questioned the wisdom of BT and the ESB building their own network when they would ultimately have to compete with Esat, which they could possibly take over. Although Esat is not making money at present, it has an impressive corporate client list - in excess of 3,300 - which is the more lucrative end of the telecoms market.

"By taking over Esat, a company such as BT would be knocking out a competitor and getting an infrastructure without the expense of building their own," explained one analyst.

Esat has been hit by a series of price reductions, especially on international calls, which Telecom Eireann has introduced over the past nine months. However, Esat is also a 45 per cent shareholder in Esat Digifone. Digifone, which has attracted more than 100,000 subscribers in the first nine months of its existence, is seen as an attractive part of any deal. The mobile market is growing rapidly in Ireland, and there will be just two operators for at least another year.

Analysts at CSFB estimated yesterday that if Digifone was taken out of the equation, Esat would be worth about £125 million.

The chairman of Esat Telecom, Mr Denis O'Brien, declined to comment last night. WorldCom Ireland chief executive, Mr Sean Melly, said there was no substance to the CSFB report at the moment. However, he pointed out that one of the reasons his company, TCL, sold out to WorldCom last year, was that "ultimately, telecommunications is a global business".