Irish telecoms entrepreneur Denis O'Brien dropped out of the race to buy the number three mobile operator Meteor yesterday as the asking price soared to more than €420 million.

The departure of Mr O'Brien from the auction leaves Eircom and its rival Smart Telecom in a head-to-head contest for the operator.

But analysts said last night Eircom was now a firm favourite to win the battle for Meteor, which would probably achieve a price in excess of €420 million.

"Eircom can probably go further than Smart Telecom because it has more customers to leverage," said Brid White, analyst with Merrion Stockbrokers, who estimates that Eircom will need to raise about €275 million through a share issue.

A banking source said Eircom would probably raise €300 million to help it fund the acquisition and a bid for a third generation mobile licence (3G).

If Eircom's bid is successful the share issue would probably take place in September, the source said.

Mr O'Brien, who had teamed up with the private equity firm Permira to fund a bid, is now expected to concentrate on building his Caribbean mobile operation Digicel.

Digicel confirmed last night that it is raising $250 million (€206.7 million) in debt to help it fund a rapid expansion in the Caribbean.

The fundraising through loan notes due to mature in 2012 will help it fund the roll-out of a new service in Trinidad and Tobago and to acquire the Caribbean and Bermuda assets of the US operator Cingular.

A note on the fundraising by the ratings agency Fitch also gives a financial insight into the operating performance of Digicel. It shows the firm finished fiscal 2005 with 1.722 million subscribers, an estimated market share of 66 per cent, and revenues of $478 million and EBITDA (earnings before interest, tax, depreciation and amortisation) of and $155 million.

Mr O'Brien would not comment last night, but sources close to the entrepreneur said the price had gone beyond what he was prepared to pay for Meteor.