Bad signal for broadband Britain

New Labour's grand multi-media vision is beset by all sorts of problems

If there was one man you'd think would believe Labour's rhetoric on broadband, it would be Douglas Alexander. He's the minister responsible for e-commerce, charged with encouraging us all to sign to up to the future – the high-speed internet.

But in the week after BT slashed its broadband prices, the Department for Trade and Industry minister is strangely reticent. "Six months ago I asked BT to lower its prices, so this is a significant step," he tells The Independent on Sunday.

A good opening gambit. But what about New Labour plans for world broadband domination? Mr Alexander's predecessor (and now boss), Patricia Hewitt, boasted a year ago that by 2005 Britain would have the "most extensive and competitive" broadband market of the G7 countries. Is this target still achievable? "It's a challenge, not just for government but for industry too," says Mr Alexander. Is 2005 realistic? "We have already achieved considerable success with narrowband."

You've probably got the picture. Deep down, Broadband Britain has become a bit of an embarrassment. Never mind the G7, Britain is lagging behind most of its continental European rivals (see the graph above). Tim Johnson, principal analyst at research firm Ovum, sums up the Government's chances of achieving its 2005 goal: "Not a hope in hell."

Like many technology experts, however, Mr Jackson senses that broadband is on the brink of taking off in the UK, spurred on by BT's decision to reduce its monthly broadband retail price to £29.99. The bad news for Mr Alexander is that it is about to spark a huge row over BT's dominance and the Government's approach to competition.

Most domestic internet users access the web through BT's copper wire network, known as "narrowband". While this is fine for viewing web pages, the download speeds are generally too slow for more advanced applications. A new report by Cap Gemini Ernst & Young shows that it would take around 10 minutes to download the average pop song on narrowband internet. With broadband, this would fall to 30 seconds. Next-generation broadband would cut the wait to just three seconds.

There are three types of broadband company offering these services in the UK:

* DSL operators. Through BT's copper network and using a technology called DSL, these are able to send internet signals at high speeds.

* Resellers. Companies such as Freeserve buy broadband capacity wholesale from companies like BT and sell it on to consumers.

* Cable companies. Operated by the likes of NTL and Telewest, these offer broadband through their fibre networks.

While cable broadband is growing quickly, the fate of high-speed internet access is in BT's hands. And this is where the trouble begins. Under former chief executive Sir Peter Bonfield, BT was accused of blocking rivals' attempts to use DSL. On top of this, its broadband price, both wholesale and retail, was prohibitively high.

Under new management, BT has gone full circle. Tomorrow chief executive Ben Verwaayen will put broadband at the centre of his new strategy for growth. But rivals, notably Freeserve and Bulldog Communications, say telecoms regulator Oftel has allowed BT to use its dominant market position at the expense of competition. Freeserve, in a letter to Oftel head David Edmonds, accuses BT of having "orchestrated a campaign of anti-competitive behaviour". Its central allegation is that BT Wholesale is not operated at arm's length from BT Openworld, its internet service provider. Under BT's licence agreement, the two businesses should be autonomous.

In particular, Freeserve claims that BT Openworld had advance notification of BT Wholesale's proposed broadband price cut. This, says Freeserve, allowed Openworld to prepare its advertising campaign ahead of its rivals.

"We can't afford for this situation to drag on," says David Melville, Freeserve's company secretary. "Embarrassed by the low take-up, it seems the Government is driven by achieving Broadband Britain at all costs."

It is understood that last month Freeserve chief executive John Pluthero fired off an angry letter to Tony Blair complaining about BT dominance.

Mr Alexander says: "The appropriate body to deal with this is Oftel. The challenge for Freeserve is to bring supporting evidence to the regulator."

BT dismisses Freeserve's claims. A spokesman says: "There are Chinese walls. BT Openworld had no more access to information [on the wholesale prices] than any other company."

Bulldog Communications is also crying foul. Backed by Lattice Group, it wants to compete with BT by offering wholesale DSL to resellers. But it claims that BT's recent wholesale price cut, to £14.75, has priced it out of the market.

Bulldog has held a series of meetings with BT over the last few weeks and is hopeful of a resolution. "I believe that BT is genuine when it says that it wants to open the market up to competition," says Bulldog chairman Richard Greco.

One idea being discussed is a reduction in the charges that companies pay BT for access to local telephone exchanges. If an agreement can't be reached, Mr Greco warns that Bulldog "would need to have very serious discussions with our investors".

All this noise will have little effect on cable broadband. But NTL and Telewest have got their own pressing debt problems. Ovum's Mr Johnson says: "Because they are in so much financial trouble they haven't spent enough on marketing [broadband]. It requires hundreds of millions of pounds, if not billions, which they clearly don't have."

So there we have it: BT is using its muscle to drive forward broadband, but running into competition problems. And a slice of the market that could provide competition hasn't got the money. Somewhere in the midst of this muddle, Broadband Britain will take off. Just don't ask the Government when.