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Last week's dire profit warning from BT has put the company's plans to build a new super-fast broadband network for 10 million British homes in jeopardy. The warning also appears to have made it critical that the rest of the telecoms industry now help meet the estimated £3.5bn cost of realising the government's ambition to bring some form of broadband to every home by 2012.
It emerged on Thursday that BT's corporate IT business had wildly over-estimated the potential profits it could make from a handful of large contracts. BT's chief executive, Ian Livingston, has come under pressure from shareholders to conserve cash by pulling his plan to spend £1.5bn on a next-generation, fibre-optic broadband network that would connect 40% of UK homes. The company has also made it quite plain to Lord Carter, the communications minister, that if he wants everyone to be able to get current-generation broadband within the next three years, BT cannot now be expected to shoulder the entire cost itself.
Carter, the former head of regulator Ofcom, will publish his plan to create a "digital Britain" later this week. His interim report is expected to make wide-ranging recommendations about the future of Channel 4 and the mobile telephone industry, but its centrepiece will be a plan to introduce a universal broadband service by 2012, offering everyone broadband at speeds of at least 2Mb per second - comfortably fast enough to watch the BBC's popular iPlayer. BT has already upgraded its exchanges for broadband, but one in 10 households cannot get anywhere near the minimum speed that Carter wants.
Connecting them through a combination of mobile and fixed-line networks, would cost about £3.5bn. Carter is expected to suggest some form of industry levy to meet the demands of his new broadband service.
However, the interim report will also warn that the UK risks being left behind in the race to build the next generation of super-fast broadband networks by countries whose governments have decided to intervene to encourage investment. The Australian government, for instance, has pledged to put A$4.7bn (£2.2bn) into the creation of a network.
Earlier this month, Carter seemed to suggest in a speech that some form of government intervention might be possible to kickstart the creation of next-generation access networks, adding that "digital infrastructure is important for our economic development".
His advisors are considering the idea of government guaranteeing investment, either by underwriting corporate debt issuance or actually purchasing corporate bonds. The Bank of England has already signalled that it would start purchasing high-grade corporate debt as part of wider moves towards quantitative easing.
At present, only Virgin Media is offering super-fast broadband services but its fibre-optic cables only pass half of the UK's homes and none of its rival providers are allowed access to the network.
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