Video-on-demand is BT's answer to declining sales

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When BT presents its first-quarter results on Thursday, the company will be asked a familiar question: how is it going to replace the revenues lost from its declining fixed-line telecoms business.

It is a question that has troubled BT's board for years, and failure to find a convincing answer has kept a lid on the company's share price. But the man charged with finding a new money-spinner, Pierre Danon, chief executive of BT Retail, believes he may have an answer.

Mr Danon is working on a video-on-demand service that will allow BT customers to watch films, sport, documentaries, and music over their broadband internet connection. "I would be incredibly surprised if in a year from now we did not have a significant presence in the market," said Mr Danon. "If this is done well it could be a very big market for us."

Mr Danon estimated that within two years, 50 per cent of BT's residential broadband customers would have video-on-demand. BT currently has over one million broadband customers.

To get BT's video-on-demand service, customers would have to buy a set-top box costing between £50 and £200. And programmes would be offered on a pay-per-view basis, with a film costing around £3.50. "We could also offer season ticket packages or a price to watch all the movies in a weekend," he said.

In the past there had been some concern as to whether BT's broadband network had the capacity to cope with downloading DVD-quality films. But Mr Danon said that BT had developed a "booster" technology that would double the broadband bandwidth to 2mb.