At 11.00 yesterday morning two Australians and a Frenchman walked into finance minister Brian Cowen's Merrion Street offices. The delegation represented Eircom and Babcock & Brown Capital, the Australian venture capitalist which controls Ireland's largest telephone company.

Ostensibly the meeting was set up to discuss addressing Ireland's poor broadband infrastructure. In reality what was in the balance was B&BC's very future in Ireland.

When B&BC teamed up with Eircom's own employees in August 2006, putting €2.36bn on the table for the former semi-state, it had a simple game plan. Split the company into a retail arm and a network arm, sell the retail bit and hold on to what would be a stable utility with a monopoly position in a thriving market generating relatively stable cashflow.

This was a proposition it felt it could sell to its own investors, mainly big Australian institutional funds looking for bond-like returns. The problem for B&BC is that it has had a much harder time selling the idea to the people who matter, namely the Irish Government, the regulator and Eircom's own employees. According to sources close to the company B&BC hoped to have split the company by the end of last year and only a few weeks ago had all but given up on the chances of a split taking place.

B&BC are not the only ones getting restless. Last November Pendvest, a hedge fund co-founded by Cavan man Seamus Fitzpatrick, which owns 5pc of B&BC, wrote to the company asking for investors to be given their money back, citing poor shareholder return performance, high fees and poor capital management. They pointed out that Babcock and Brown Capital had experienced a minus 10pc return since the company went public in 2005, while investors in the Australian Stock Exchange's ASX200 saw gains of 69pc in the same period.

B&BC met Pendinvest, which then withdrew a threat to have the Australian company would up. But B&BC had to promise to come back to investors by the end of next month with a trading update, and to spend much of its available cash buying backs 9pc of B&BC shares.

Going into yesterday's meeting, Pierre Danone, Eircom's executive chairman, Rob Topfer, B&BC's lead man on the Eircom project and Peter O'Connell, Eircom's director of corporate strategy and regulation, must have been keenly aware that time to come up with the goods was running out.

Their plan for the meeting with Mr Cowen -- and for one scheduled for later today with Communications Minister Eamon Ryan -- was to persuade the Government to give some sort of direct or indirect financial support to the company to invest more in its network with a view to bringing Ireland above European norms for broadband infrastructure. They also want to gauge the level of political support for structural separation.

Although Mr Cowen and Mr Ryan will have in their minds the need for Ireland to pull its own broadband weight, the Eircom triumvirate will have have been mindful of another of the promises they made to investors last November. Speaking principally of Eircom, but also of its investment in the Israeli-based Golden Pages, it said: "Once their potentiality has been fully realised, it should form the basis for a substantial capital return to shareholders''.

To separate or not

The easiest way for B&BC to make good on that promise would be the structural separation of Eircom. A lot of guff is spoken on this subject which makes a relatively simple idea appear complicated.

In simple terms there are two types of separation. Functional separation is akin to two siblings answerable to one parent. One sibling is responsible for the network and has its own management and accounts. It supplies a service not only to its retail sibling but to competitors on a even-handed basis.

Structural separation is much more radical, akin perhaps to allowing our siblings to annul their relationship. B&BC's principal point is that this would allow one sibling, thenetwork part, to borrow money much more cheaply.

In such a scenario not only would the two sides of the business be divorced, it would also mean that one, in this case the retail business, is free to be sold off. The bottom line is that if the Eircom egg is broken in this way, all the king's regulators and all the king's consultants will not be able to put it together again.

After 22 years of liberalisation, after which BT still retained 70pc of the British telco market, Ofcom, the UK's phone regulator, imposed functional separation on the market. Last September the New Zealand government followed suit.

Not surprisingly then, Comreg, the regulator which more than anyone else has the sayso on this issue, is not to be rushed. John Doherty, the Comreg chairman, said: "Our focus in any review will be is this in the best interest of Irish consumers, is it in the best interest of competition, and is it likely to lead to further investment which over the last three years has not taken place."

Mr Doherty believes our infrastructure is about two years behind other advanced countries. In numerical terms those Irish homes which can get a broadband service can get between one and six mbits/sec, with the norm being closer to the lower end of that scale. Japanese consumers can avail of up to 100mbits/sec while closer to home French businesses can sign up for 44.1mbits/sec. Known as 'Next Generation Access' (NGA) networks, are are still only a concept in the Irish market. One man particularly sceptical of the structural separation is Kevin Morgan, a former executive with Australia's Communications Workers Union (CWU) who, having taken an academic interest in the subject, contacted our own CWU, the trade union which represents most Eircom employees, to express his misgivings.

The Irish CWU asked him to put those misgivings into written form and then leaked an executive summary to selected media, including the Irish Independent.

The CWU finds itself in an unusual position. On the one hand its Eircom members own the minority 35pc stake in Eircom through the ESOT (Employee Shareholder Ownership Trust), which has formally signed up to structural separation and has as much to gain financially as B&BC.

On the other hand, formal relations are poor between the union and the company, which has not yet handed over the pay increments agreed under the national wage agreement, "Towards 2016 - Sustaining Progress". Nor has the company actively engaged with its own employee representatives on the separation agenda.

But while Mr Morgan, who admits not having sought the views of either Eircom or B&BC before publishing his report, may have been brought on board as part of an IR agenda, he nonetheless makes reasonable points which are likely to resonate with the many interests which B&BC has yet to convince. "What B&BC are looking for in terms of structural separation is off the scale. The UK is the only country where even functional separation has been introduced and even there Ofcom says that the diseconomies of separation are larger from smaller countries," Mr Morgan said.

In other words it is more expensive to run separate network and retail telcos that one joined unit. Mr Morgan also questioned the idea of separate network operated being able to access cheaper capital.

"That is what they [B&BC] say but when you have 80pc debt how much more can you leverage."

As Eircom is now the most indebted telcos in Europe, if not the western world, this will be one of the questions the government will be asking itself as Eircom/B&BC holds out the prospect of greater network investment.

Making the numbers work

Regulating telcos is a complicated business but in simple terms Eircom is allowed an 11.5pc return on what it invests in its network.

Were Eircom's network to be hived off some might argue that the allowable rate of return should be closer to the 6pc normally allowed for utilities such as gas and electricity. Mr Danone makes the not unreasonable point that even were the network to be operated on a stand-alone basis it would still have to compete with cable companies and mobile phone firms and so a 6pc rate of return would be unreasonable.

If Ireland does go down the structural separation road this will be the key number.

It is the allowable rate of return which will determine whether we get greater competition (low rate needed), cheaper phone bills (low rate needed) and greater investment in the network (high rate arguably needed).

But as B&BC looks at ways of squeezing money out of Eircom, or forming "the basis for a substantial capital return to shareholders" depending on your point of view, its core revenues are under threat.

The 11.5pc rate of return the company currently enjoys is one of the highest in Europe and is under review by the regulator.

Sources close to the company say a snowball would stand a greater chance of surviving a summer in the outback than Eircom securing a rate of return at our above current levels after the review.

Meanwhile the Government has put a contract for supplying broadband to the 10-15pc of the country not currently served out to tender.

Were the BT/Motorolla consortium to win this contract Eircom could see itself losing 20pc of its customer base, a prospected which sources close to the company say could cost Eircom €60m-€80m a year in lost revenue.

This is because the mobile masts would reah a much greater share of the population than the 10-15pc they are pointed at.

Some of Eircom's Irish executives privately complain that the Australian executives brought into the company, namely Peter O'Connell, and Eircom ceo Rex Comb, can at times be a little, well, tetchy.

Given the disparate interests they and their bosses Pierre Danone and Rob Topfer must seek to placate,any signs of stress would be entirely understandable.