Virgin Media and BT to pursue legal action against Birmingham city council

BT and Virgin Media will pursue legal action against Birmingham city council in a bid to prevent the local governing body from creating a broadband network that is in direct competition with theirs.

Birmingham has raised £10 million to fund the installation of fibre optic cables across the city. The money is due to come from the George Osborne-led 'super-connected cities' initiative which plans to invest £150 million for the purpose of increasing broadband speeds in 20 cities. The government has made the universal upgrade of the UK's broadband service one of its infrastructural priorities and has accordingly set a 2015 deadline for the countrywide rollout of Europe's best broadband service.

However, the two dominant telecom forces have large networks in Birmingham, which they feel will be edged out by the new infrastructure. Furthermore, the new network may provide a superior service, as it is believed that it will deliver speeds greater than the standard 100Mb/s that BT and Virgin currently offer.

"We believe it involves a significant overbuild with our network," said a Virgin spokesman, insisting that public funds should not be used to compete with private companies. "It's a poor implementation of what is otherwise a sensible policy. It sets a bad precedent and sends a really bad signal to our investors."

This compelled the service providers to file a complaint with the European Commission last week under state aid rules. The commission is required to approve government spending so as to prevent public funds being used to compete with private companies and its approval of Birmingham’s plans this summer was described by Virgin Media as a “decision based on inaccurate and misleading information which could waste public money.”

Birmingham city council member James McKay opposed BT and Virgin's decision, which the council said could stall the creation of 1,000 new jobs.

"Birmingham is extremely disappointed in the decision to appeal this landmark ruling," he said. "The city has worked in a very positive and collaborative way with the companies over the last few years to help inform and develop our business case and we are surprised that they have now chosen to appeal at such a late stage."