Eircom has pulled out of a State-subsidised €37 million project to provide fibre optics and digital subscriber line (DSL) technologies to the Border, midlands and western regions.

The technologies would have provided high-speed Internet and multimedia services over ordinary telephone lines as far north as Buncrana in Donegal and as far west as Tralee in Kerry.

Eircom was awarded €12.4 million funding under the National Development Plan for the projects as a means to bridge a growing "digital divide" between Dublin and regional towns. However, it is understood Eircom management has vetoed the project as part of its ongoing business review. Sources close to the project confirmed last night a formal letter would be sent to the Government shortly.

It is understood management dropped the plan because of a global retrenchment in the telecoms market and a new sceptical approach to expensive, new technologies such as DSL.

Eircom's decision to pull its investment is the second major disappointment within a month for a Government-backed scheme promoting Internet and telecoms infrastructure in the regions.

Last month another telecoms provider, Formus Broadband, went bust, shelving £15 million worth of grant-aided projects in e-commerce and communications measures contained within the National Development Plan.

Sources close to Eircom suggest the company is radically cutting back its plans to introduce DSL technology. Within the past few months, management has cut off funding to multimedia subsidiaries connected with Eircom. This has led to the closure of four firms in which Eircom had an interest - Ebeon, Nua, Viasec and Rondomondo - with the loss of more than 200 jobs.