EIRCOM will have to prepare a legal defence in a case in which £40 million (€50.8 million) in damages is being sought against the firm. Ms Justice Mella Carroll has told the company it must prepare a legal defence and file papers within two weeks. She also awarded legal costs to the Esat Group.

The legal proceedings were originally lodged by Ocean Communications in June last year but are now being pursued by the Esat Group.

The group is claiming damages in excess of £40 million from Eircom in a dispute about the supply of capacity it was offered on the incumbent operator's telecommunications network.

Esat claims Eircom abused its dominant position in the marketplace by restricting supply of capacity to its competitors, in breach of Irish and European competition law.

The legal challenge was made following the launch of the State's first free Internet service, Oceanfree.net. Esat claims the service was constrained as a result of Eircom's failure to provide capacity.

This is disputed by Eircom.

The legal action names Eircom and its two subsidiaries, Indigo (an Internet service) and Eircell (the mobile operator), as defendants.

Meanwhile, telecoms regulator Ms Etain Doyle said she had found no evidence that Eircom was unfairly cross-subsidising its Internet companies, Indigo and Eircom net.

However, Ms Doyle said she would monitor Eircom's ISPs to ensure performance of the ISP business matched the forecasts in the ISP business plan.