AOL spending £50m to battle BT

AOL is investing millions in local loop unbundling (LLU), a move designed to help it compete in a higher speed, service-orientated broadband market.

AOL has announced it will be spending £50m on the first phase of its LLU programme, which will enable it to take direct control of a customer's telephone line and sell services such as video on demand straight to them, rather than reselling BT's offerings.

The first phase of AOL's LLU plan will see it take over parts of 300 local telephone exchanges, giving it access to 20 per cent of the UK's population. If demand is sufficient, AOL will then invest a further £70m to unbundle 1,000 more exchanges.

Local loop unbundling has become flavour of the month among several ISPs - Wanadoo announced last year that it will be spending €1bn on LLU.

Like all incumbent European telcos, BT was forced to open up its local exchanges to competition a few years ago. However, rivals complained LLU was too expensive and that BT was obstructing the process. In 2004 Ofcom forced BT to lower its prices, sparking a surge in interest among rivals.

Earlier this month, BT officially took the wraps off Openreach, its business unit charged with managing the unbundled network.

The Office of the Telecoms Adjudicator, set up to oversee LLU, predicted in its January monthly update that there will be more than one million unbundled lines this year.

ZDNet UK's Graeme Wearden contributed to this story