CHEAPER trunk calls and a wide range of telecommunications services will be on offer within a year, one of Telecom Eireann's main rivals Esat Telecom has said.

Esat confirmed that it is at an advanced stage of agreeing a deal with CIE to use railway lines for a new national phone network. Although neither side would disclose how much will be invested, industry sources put it at £20-£25 million.

The two companies, which have been in discussions for several months, have signed heads of agreement for an independent fibre optic telecommunications company. The new network, which is expected to be in operation within a year, will be aimed at the corporate and residential market.

The move should boost Esat's revenues substantially. From July 1st, under an EU liberalisation directive, it will be able to target the business market for internal traffic without haying to lease lines from Telecom Eireann.

Industry observers say having an independent network will result in substantial savings, which should be passed on to customers.

British Telecom is currently in discussions with the ESB about using its network for a similar purpose, but no agreement has yet been reached.

The fibre optic cable will be carried along the existing rail network which CIE owns. Work on laying the cable will begin in August and should take less than 12 months to complete, according to Esat.

Esat said the telecommunications network will be far superior to anything already in place in Ireland. The network will be able to carry voice, date, video and television services.

It will allow customers to have access to services which include interactive multichannel TV, the Internet, as well as being able to interact with banks, shops and other service providers.

Esat chairman, Mr Denis O'Brien, said it represented a critical step in Esat's bid to become a fully fledged competitor of Telecom Eireann. "It puts Ireland properly onto the information highway for the first time," he said.

Mr O'Brien said Esat already had a substantial corporate business in Ireland. It had 2,600 large corporate customers and it will be able to offer them a whole host of enhanced telecommunications services".

He said the company, which raised funds in the US last year, had enough money to put the network in place. Esat would be developing underground networks in towns and cities throughout Ireland.

It is understood that CIE will not have to invest cash in the joint venture company. In return for providing the network, it will up grade its signalling system and will be able to avail of the enhanced communications network Esat will provide.

Mr O'Brien said Esat was developing a network which will be "future proofed". It will have the capacity to deliver current and future communications products.

In a statement, CIE Group chief executive Mr Michael McDonnell said the agreement provided further evidence of CIE's determination to become increasingly commercial in the marketplace by maximising the return on all its assets.

A spokesman for Telecom Eireann said it was clear evidence of intensifying competition in the marketplace. "We welcome the competition because it is in the interest, not only of customers and the Irish economy, but also in the longer term interest of Telecom Eireann," he said.