BT targets savings of £1bn a year with overhaul of network

BT Group announced plans to revamp its core infrastructure technology yesterday and spend £2.25bn a year on a new "21st century network" aimed at delivering £1bn of annual cost-savings by 2008.

BT Group announced plans to revamp its core infrastructure technology yesterday and spend £2.25bn a year on a new "21st century network" aimed at delivering £1bn of annual cost-savings by 2008.

The company is upgrading its networks to use internet technology carrying both voice and data, rather than having separate platforms for each.

Marconi, Alcatel and Siemens announced they would supply equipment to BT for trials of its new network, with a full tender process for supplies set to be complete by the end of this year.

Paul Reynolds, the chief executive of BT Wholesale, said the new technology would allow people to access any communication service from any device, anywhere, and at broadband speeds.

However, analysts said BT had no choice but to commit to the new technology. Jim McCafferty, of Seymour Pierce, said BT was "running to stand still" as its business came under attack from regulatory and competitive pressures. "We see this as evidence that BT needs to work hard at its cost base in order to offset its declining revenue streams," he said.

Mr Reynolds admitted the type of communication services supplied by BT are half the price they were 10 years ago, underlining the problem faced by BT which needs to improve dramatically its efficiency levels to protect turnover.

Although BT's local copper-wire network will remain, it is testing fibre-optic technology to see if it should replace copper when connecting newly-built properties.

The transfer of BT customers from its existing network to the internet-based network will happen in stages, with mass migration starting in 2006. The new network will require fewer people to maintain it.

BT is making the move to replace the public switched telephone network (PSTN) - which has a single line connecting two places for one conversation and dates back to the origins of the phone network in the 1800s - with a system that turns every word and silence, and data, into a "packet" of internet data that will travel over its own internet-style backbone. This should mean better-quality phone calls - Mr Reynolds yesterday promised they would not be worse - with the possibility of video calling.

The PSTN will be effectively retired by 2009, although there will still be copper leading to millions of homes and businesses around the country. However, these premises should be able to get high-speed broadband by then.