Battle was joined in the race to provide the UK with superfast broadband yesterday after BT unveiled plans for a fixed-line network offering speeds five times quicker than those currently available.
BT, the former fixed-line telephone monopoly, is to spend £1.5bn on a fibre-based network covering 10m homes that will enable download speeds of 40 megabits a second, compared with the existing 8Mbps industry benchmark.
BT has been spurred into action by Virgin Media, the cable television company, which plans to offer speeds of up to 50Mbps to 12m homes by the middle of next year.
Virgin Media will have a headstart on BT, because the phone company will not start deployment of its new network until 2009-10. It is hoping to run the network past 10m homes by 2012.
BT has been under pressure to commit funds to superfast broadband by the government, which is concerned UK competitiveness could be damaged.
Countries such as Japan and the US have already begun to install such fibre networks.
Ian Livingston, BT chief executive, said the company had taken "a bold step", while admitting consumers would pay a premium for superfast broadband.
He added that the bulk of BT's £1.5bn investment depended on Ofcom, the regulator, allowing the company to make a "fair rate" of return on the capital employed.
John Hutton, secretary of state for business, welcomed BT's announcement.
But BT's shares closed down 4.8 per cent at 192.3p, partly because the company said it was suspending its share buy-back programme. Investors are also concerned at the prospect of higher capital spending.
Virgin Media's shares, which are listed on Nasdaq, were down 4.4 per cent by late afternoon in New York, partly because the company has been making its higher broadband speeds the centrepiece of its marketing.
Howard Watson, Virgin's chief technology officer, rejected Mr Livingston's call for the company to open up its broadband network to competitors, which could expose it to greater regulatory scrutiny.
Shares in British Sky Broadcasting and Carphone Warehouse, BT's archrivals in the cut-throat broadband market, also closed down 3 per cent and 6.6 per cent, respectively.
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