Telecom Eireann is concluding a deal to purchase Indigo, one of Ireland's largest Internet service providers, for an undisclosed figure. The move will make Telecom, which also runs its own Internet service, Tinet, the second largest Internet provider in Ireland, industry sources said.

It will also mean that state companies have the lion's share of the market here. Earlier this year, Postgem, a subsidiary of An Post, bought Ireland On-line, Ireland's biggest Internet provider.

Ireland On-Line claims to have a 60 per cent share of the market and around 30,000 subscribers.

Estimates of Indigo's subscriber base vary from around 9,000 to somewhat less. It is not believed to be making profits currently and the purchase price is said to be in the region of £500,000.

The attraction for Telecom is that it will give it access to a lot more customers and it will be in a strong position as it will not have to pay connectivity costs. Such costs account for a large proportion of Internet providers' costs.

Industry sources said last night that the purchase - which some said was in the very final stages of negotiation - may be examined by the Competition Authority.

Last year, a share issue by Indigo raised £1.6 million. Investors included Standard Life, which has a 20 per cent stake and clients of Davy stockbrokers, who have 9 per cent. However, the biggest shareholder is the family interests of Mr Shay Moran - who acquired Indigo from the Moyna family in September 1996. He has 46 per cent of the company. Two other investors have 16 per cent and 5 per cent while Mr Richard Nash of Nash's Mineral Water holds the remaining 4 per cent.

A number of parties, including Esat Telecom, expressed an interest in acquiring Indigo in recent months.