Telecom Eireann plans to invest more than £5 million in Nua, an Irish Internet company. The deal will see the State-owned firm take a minority share in Nua, but a majority stake in Local Ireland, the Internet architecture designed by the smaller company.

The move means that Telecom Eireann will be at the centre of a planned expansion by Nua, which could culminate in a stock market flotation within the next two years. The Dublin-based company currently employs 34 people but expects to hire another 150 by 2002.

According to sources, Telecom Eireann will pay £1.3 million for a 20 per cent stake in Nua. It will also invest £4 million over two years developing Local Ireland, 90 per cent of which it will own.

Nua's chief executive, Mr Gerry McGovern, said last night he would not discuss the sums involved, but could confirm that Telecom Eireann was making a strong investment in his company. Mr McGovern, along with Mr Anton O Lachtnain and Mr Niall O'Sullivan, founded the company in September 1995.

Even with Telecom Eireann's 20 per cent stake, Mr McGovern said, the three men still controlled a majority shareholding in Nua. The company's chairman is Mr Ossie Kilkenny, a well-known showbusiness financial adviser.

Telecom's investment in the Local Ireland Internet infrastructure represents something of a gamble but could prove both strategically important and financially lucrative. Nua has spent three years developing Local, which is a system for retrieving detailed information very quickly from the Internet.

With 100,000 new World Wide Web sites a week, the amount of information available on the Internet is doubling every 90 days. Popular Internet search engines, based on trawling for key words are finding it impossible to keep up and Internet users are now accustomed to having to sift through hundreds of pages for each search.

The Local system ensures that information is input in exactly the same way by government agencies, voluntary bodies and companies alike.

"Just as an economy needs a good road network, it needs a network to deliver information in the shortest and most accurate manner," Mr McGovern said. "In the future, a third world economy will be a country that cannot organise its information."

If Ireland alone was to adopt the Local system, analysts say, Telecom's investment would have paid off. If other countries were to adopt the system on a franchise basis, the State company could reap huge rewards.

Nua is planning a rapid expansion, which includes the franchising of the Local system abroad. Mr McGovern said that if it were successful, the company would have to move within the next 18 months and would require the sort of capitalisation that stock market flotation could deliver.

A spokesman for Telecom Eireann said the deal formed part of the company's overall strategy to advance the information age in the Ireland. Local Ireland, in particular, could be used to engage communities throughout the country in the information age, he added.