A senior advisor to the prime minister has denied claims that government policy has left the UK "sleepwalking towards a broadband monopoly", with BT's power over the local loop giving it no reason to innovate.
The local loop is the term used to describe the network of wires from local exchanges to homes and businesses, fully owned by BT.
A report from think-tank Demos suggested that control of BT's local loop should be handed to a not-for-profit company that would maximise access to all telecoms service providers and increase network innovation.
Demos admitted that there may be short-term advantages in allowing BT to roll out broadband as quickly as possible, but that there are longer term risks.
James Wilsdon, the report's author, said: "The UK is sleepwalking towards a broadband monopoly, with little opportunity or incentive for innovation within the network.
"The government has consistently ducked this issue and tackling it should be a top priority for Ofcom from the start."
Ofcom is due to replace existing telecoms regulator Oftel next year, with added responsibility for electronic media and broadcast content.
But Ed Richards, senior policy advisor to Number 10 on internet and IT, said: "To say we are heading for a broadband monopoly just cannot be supported by the facts."
He explained that in France and Italy the incumbents hold around 70 per cent of the broadband market, and that in Germany the figure is around 98 per cent.
"In the UK it is quite different," he said. "BT has about 30 per cent of the market and BTopenworld has 20 per cent. That's more competition in infrastructure and retail than anywhere else."
But Richards admitted that there is no room for complacency. "We launched broadband too late and we have to tackle the digital divide," he said.
For the past few years many of BT's rivals have argued that they should be able to put their own equipment in exchanges so they can offer services without having to lay new cabling.
This would be prohibitively expensive for all but the biggest operators and, BT's critics have argued, would stifle competition in both pricing and range of services available.
Oftel forced BT to allow this, but many companies complained that BT charged too much money for rent.
Most internet service providers now lease space and equipment from BT, but the local loop remains the property of BT.
The company has in the past suggested that it could separate its infrastructure management division as a separate company but the plan was never enacted. BT now says there is no need for it to do this.
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