BT split over broadband access strategy spills into the open

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Sir Christopher Bland, the chairman of BT Group, and Pierre Danon, the chief executive of BT Retail, appeared poles apart last night over the increasingly vexed question of the company's crucial broadband internet investment programme.

The boardroom argument over where money should be spent has raged for weeks within BT, although the company insists it is a debate not a rift.

The disagreement spilled over into the public arena yesterday at BT's interim results presentation. Sir Christopher said that investing in its local exchanges to help grow its broadband internet business was not the company's preferred option. However, Mr Danon, who is responsible for broadband sales, said the company's alternative technology might not prove viable. He prefers investment in local exchanges, a process called local loop unbundling (LLU).

Ofcom's regulatory regime has made LLU a cheaper option for internet service providers, such as BT Retail, to connect broadband customers compared with an alternative technology provided by BT's wholesale arm called IP Stream.

Mr Danon said he was "assessing" by how much BT Wholesale's IP Stream product would have to fall in price before it made economic sense. But he also pointed out that IP Stream's technology still raised questions about its viability. Addressing the interim results Mr Danon said: "We need comfort on the functionality we can get of non-LLU products. That, and cost, are the two things we need to make an alternative viable."

However, Sir Christopher made it plain IP Stream was the company's preferred way forward for broadband. He reiterated that BT wanted Mr Danon's BT Retail division to be able to compete with rivals on an equal footing. But he warned that if BT Retail was allowed to invest in local loop unbundling then this could endanger BT's £10bn network upgrade plans, known internally as 21st Century Network.

"This is not about Pierre or Ben [Verwaayen, the chief executive] or me or anybody else," Sir Christopher said. "It's not about names and personalities. That's silly. This is a seriously complicated issue and the reason we haven't got a solution to it is because of its complexity. But it's also the point that the 21st Century Network needs an anchor tenant and if BT Retail goes down LLU that changes the nature of 21st Century Network."

The disagreement over shadowed BT's half-year results that showed turnover up 1 per cent to £9.2bn. Pre-tax profits fell 4 per cent to £983m, but earnings per share were static at 8.5p.