The future of the Imagine mobile phone service is in doubt following Eircell's withdrawal of a contract which enabled it to sell on minutes to customers cheaply.

Imagine chief executive Mr Sean Bolger admitted last night the firm would be forced to quit Ireland unless it secured a new discount agreement with a mobile operator.

He called on telecoms regulator Ms Etain Doyle to intervene in the dispute and enable the firm to secure commercial terms with a network operator.

Since its arrival, Imagine, which is run by Cellular 3, a subsidiary of Meridian Communications, has relied on a 40 per cent volume discount agreement with Eircell to supply its 20,000 customers with mobile air time. Eircell withdrew the agreement yesterday following a High Court judgment which ruled the company was not dominant in the marketplace.

Mr Justice O'Higgins found against claims by Meridian that Eircell was in a dominant position. As a result, he did not rule on claims that Eircell had abused a dominant position.

However, in a 158-page judgment Mr Justice O'Higgins found Eircell guilty of a number of breaches of its air-time purchase contract with Meridian. Mr Justice O'Higgins described Eircell's behaviour towards Meridian as, in one respect, "obstructive, obdurate and arrogant".

An Eircell statement issued after the ruling said it considered these matters to be minor issues relative to the overall context of the case.

It said Eircell was terminating the discount agreement with immediate effect. The company would sue for damages to retrieve discounts provided to Meridian since the case began.

Meridian must decide whether to absorb the extra cost of supplying its customers without a discount agreement or raise its prices.

It is understood the company has been involved in protracted negotiations to obtain a new volume discount agreement from Eircell since August 2000.

However, without regulatory intervention, it is almost certain Eircell would not deal with Meridian. A spokeswoman for the regulator said last night the office was following the negotiations but had not received a new dispute resolution request from the company. It is not clear, in any case, whether the regulator would be in a position to intervene in this instance.

Last night Mr Bolger said he would appeal the case to the Supreme Court and possibly the European Court. Imagine would seek substantial damages from Eircell for the breaches of contract which had prevented the firm from building its customer base, he said. This figure could be almost £100 million (€127 million).

The action, which dates from January 2000, is believed to be the longest competition proceedings in the history of the State. Costs are thought to run into millions of pounds.