New BT broadband plan suspends share buyback scheme and sends shares into nosedive

The afternoon was billed as a "Farewell and Welcome Party", the main purpose of which was to say goodbye to Ben and hello to his successor, Ian Livingston.

Mr. Livingston officially took over at BT on July 1 but the hand-over process is a lengthy one and Mr. Verwaayen is still travelling in to the BT Centre hard by St. Paul's Cathedral in London every day and will continue to do so until the end of the month.

On Sunday, I asked Ben about his plans for the rest of what is laughingly referred to as the Great British Summer. He said, "I'm going to take a bit of time off but I'm still working right now. There are still a few things left for me to do at BT".

This morning we know what one of those few things actually is as BT announces that it is to invest £1.5 billion in fibre optic cabling and networks vastly to improve the provision of fast broadband connectivity across the UK over the course of the next four years.

The decision is being presented as the first important step the company has taken since Ian Livingston became CEO but it must surely have been taken with the full knowledge and support and in the light of advice from Mr. Verwaayen.

The upside of the plan is that both urban and rural BT subscribers (some 10 million of them) will get access to faster broadband, the downside is that BT is part-funding the huge project by suspending its £2.5 billion share buyback scheme with effect from July 31 and you will, no doubt, note the £1 billion discrepancy between the sums being invested and the cost of the share buyback programme.

The City's reaction to the news was immediate and critical. In early trading BT's shares dropped back by 4 per cent to £1.95, their lowest level since the summer of 2005.

On the face of it the market's reaction is extreme given that investors will still get their dividends and Britain will get a much-needed boost to its broadband infrastructure. During Ben Verwaayen's time the carrier has indeed increased its fast access products but there is always room for improvement and so full marks to BT for deciding to provide more infrastructure.

According to BT the plans are to supply fast broadband to a further 10 million domestic premises across the UK to reach a target of 40 per cent of British homes by 2012. What's more, some 1 million houses will get direct connection to a fibre optic filament, thus equipping them with even faster broadband.

In a statement issued this morning, Ian Livingston writes, “We now want to make a step-change in broadband provision which will offer faster speeds than ever before. This marks the beginning of a new chapter in Britain’s broadband story. We want to work with local and regional bodies to decide where and when we should focus the deployment. Our aim is that urban and rural areas alike will benefit from our investment”.

BT is reacting to the increasing consumer demand to be able to access and run multiple bandwith-intensive services simultaneously.