Telecoms company Eircom has warned it is likely to breach its covenants within three months as revenue and earnings continued to fall.

The group has been warning for some time that it was in danger of breaching the agreements with its lenders. In December last year, ratings agency Moody's downgraded Eircom's debt and suggested that it could breach its financial covenants by the end of June.

Today, the company said it was in full compliance with financial covenants as of March 31st, 2011.

"However it is likely that the group will breach its financial covenants with its lenders within the next three months," it said. "The group is in discussions with its shareholders and intends that discussions will take place with its relevant lenders with respect to the overall financial position of the group and the response to any covenant breach."

Earnings before interest, taxation, depreciation and amortisation were €160 million for the quarter ending March 31st, falling 5.9 per cent compared to a year earlier.

Revenue also dipped, declining by 10.5 per cent to €407 million as competition and a difficult economic environment weighed on business.

Eircom has seen its traditional landline business slow in recent years. The group said the loss of standard PSTN lines accelerated during the quarter, but was partly offset by price increases introduced in March.

Meanwhile, the DSL market is also showing signs of slowing, as competition from cable and mobile broadband increases. During the quarter, retail customers fell by 9,000 to 491,000. Eircom had a total of 678,000 customers across retail and wholesale for the period, a fall of 4 per cent compared to the same period a year ago.

Although the group had an overall net loss of 8,000 customers in its mobile division, it made gains in contract customers.

Some 14,000 post pay customers were added across Meteor and eMobile. This was offset by a reduction of 22,000 prepay customers, considered lower value.

Total mobile customers were 2 per cent lower than a year earlier at just over 1 million.

Revenues also declined by 17 per cent during the three-month period as customer numbers diminished and average revenue per user was reduced. Mobile termination rates were also lower in the quarter.

In April, workers at the telecoms company voted in favour of a recovery package that is aimed at saving €92 million. The plan involves pay cuts of 10 per cent, reduced working hours and more than 1,000 job cuts.

Eircom said it had made “good progress” on costs and competitiveness, and the agreement with workers was expected to deliver savings of about €20 million in first year.

However, chief executive Paul Donovan predicted the decline in Ebidta would continue in the coming year at an accelerated pace.

"Despite sustained progress to reduce operational costs, the underlying fundamentals of the Irish economy and intense competition continue to create trading challenges for the group across both our fixed and mobile segments," he said.

"This quarter demonstrated the impact of additional personal taxation changes on our customers as well as the impact of regulation on the business in the form of reduced mobile termination rates."