The decision by Swedish group Telia not to sell its 14 per cent in Eircom in the forthcoming secondary share offering means that the uncertainty which has plagued the Eircom share price throughout this year is set to continue for months to come. The news came as the former State telecoms company announced a 17.8 per cent increase in pre-tax profits to €337 million year on the year to the end of March.

Yesterday, Eircom shares remained weak as the market absorbed the group's results and the latest developments on the secondary offering. The shares closed down 16 cents on a new low of €3.24.

Market sources said they saw no reason to change their view that the KPN shares will have to be sold at a minimum of a 10 per cent discount and possibly more, suggesting that the eventual price is gradually slipping back to well below €3.00, possibly as low as €2.70.

Until yesterday, it was generally expected that Telia and its partner in the Comsource consortium, Dutch group KPN, would sell their entire combined 35 per cent holding in the secondary offering, thereby finally removing the share overhang that has depressed the Eircom share price.

But yesterday morning, Eircom chief executive Mr Alfie Kane was informed by Telia that the Swedish group was not going to take part in the forthcoming offering, even though it was still committed to selling its 14 per cent stake. Until then, Mr Kane and the rest of the Eircom management, not to mention Telia's partners KPN, believed that the Swedes would also sell and that the full 35 per cent stake would be offered to investors.

The latest development came only two days after Telia's chief financial officer, Mr Reinhold Geijer, said that the Swedish group planned to sell its Eircom stake "as soon as possible".

Within 48 hours of what seemed like a firm decision to sell its 14 per cent in Eircom, Telia spokesman Mr Lars Billstrom, when asked about its plans for its Eircom stake, said: "No, not yet."

The Telia spokesman was unable to give any reason for the change of heart, nor any details as to when Telia plans finally to unload its Eircom shares. However, market sources said that the Swedes are in no immediate need of the €900 million-plus that its shares might realise in the planned secondary offering and could afford to wait until the price has recovered - hopefully - from the impact of the sale of KPN's 21 per cent stake.

Mr Kane was reluctant to comment on the share sale, given that decisions on price, timing and allocations are matters for KPN and its advisers. But sources close to the company were, to put it mildly, irritated at the Telia decision, on the basis that it will continue to overhang and depress the Eircom share price.

A 14 per cent overhang may be substantially less than 35 per cent, but it is still big enough to weigh heavily on the Eircom share price for much longer than the company's management - and its 488,000 shareholders - had expected.

One Dublin analyst suggested that Telia was merely being pragmatic and could afford to wait before selling. "They might have been scared off by the predictions that the shares will be sold at €3.00 or below. At the moment, cash is not a problem for Telia, its gearing is 78 per cent and that's well in line with sector averages. They don't need the cash desperately, so why sell?"

KPN director Mr Martin Pieters was careful not to comment on Telia's decision. "Ask Telia" was his blunt response. But sources said that the Dutch group is furious at this about-turn by its Swedish partner in the Comsource consortium, and believes that the Swedes are guilty of at least a breach of faith.

Mr Pieters said: "KPN decided two years ago to refocus its operations and concentrate on Internet and mobile phone businesses. KPN is a medium-sized telecom company and we can only bear a certain load, we have to prioritise."

Mr Pieters did not accept that KPN is selling its Eircom shares into a market where there is a glut of paper coming on the market with the latest tranche of Deutsche Telekom and the Telia flotation already on the market. "Our offering isn't that big and we believe that the market can bear it," he commented.

Mr Pieters was also quick to play down the profits that KPN has made from its four-year investment in Eircom. "Our profit is not as fabulous as people might think," he said, emphasising that KPN and Telia had paid £1.9 billion to the Government this year as part of the profit clawback arrangement that was part of its Eircom strategic partnership agreement.

The decision by Telia to postpone the sale of its 14 per cent stake means that about 460 million Eircom shares will now be offered to investors, rather than the 770 million originally thought, with 69 million rather than 115 million shares being offered to private investors. Mr Pieters would not be drawn on the price at which KPN's shares would be sold, how the shares would be allocated between institutional and retail investors and whether retail investors would receive any discount on the secondary offering price.

A roadshow to promote the share offering will now get under way with the aim of having the shares placed by mid-late June.