BT Openworld is desperate for new broadband business. Now chief executive Alison Ritchie faces added competition - from BT itself. But, she tells Kate Bulkley, they are both playing on the same side

From this week, the telephone company will offer a no-frills internet connection in competition with BT Openworld's connection-plus-content offering. Through BT Retail, subscribers will be able to pay £28 a month for a simple broadband connection, £1.99 less a month than BT Openworld's recently re-priced full-service broadband offer. The head of BT Retail, Pierre Danon, has even been quoted as saying that Ritchie will have to "re-think her strategy" because of the new offer.

Sitting in BT Openworld's cavernous offices in an old telephone exchange in the City, Ritchie fairly screams, "No, oh no!" when asked if BT Retail is trying to kill BT Openworld. "There isn't a conflict. These are complementary services. A lot of my Openworld people are helping Pierre's guys design his product. We are one company, we are one operating committee and we work together for what is the best for the company."

Although BT's long-suffering shareholders may cheer an aggressive move to build its core business, Ritchie's words are guaranteed to make competitors such as Freeserve cry foul. Last week, in a letter to the FT, Freeserve's CEO, John Pluthero, asked how BT Openworld can offer a fully loaded ISP for just £1.99 below the planned BT Retail access-only price "without the slightest hint of predation, cross-subsidy or any other form of abuse of market power"?

For its part, BT Openworld says it has refuted all complaints that have been put to the regulator, Oftel. Ritchie, 42, has spent two years in regulatory affairs during her 20-year career with BT and knows that under Oftel rules there must be transparency and that BT Openworld must be separate, "particularly from BT Wholesale. Obviously you have to have people separate and you have to account for it separately. We work in a regulated industry and within that we follow the rules. But at the end of the day we're in business to offer products and services," says Ritchie.

Last week Oftel ruled against Freeserve's latest complaint that BT Openworld had knowledge prior to the rest of the internet industry of BT's plans to lower its wholesale broadband prices, a move that will help both BT Openworld as well as competing ISPs, all of whom must "buy" their broadband phone lines from BT. Freeserve also complained that BT's new £10m broadband marketing and advertising campaign is intended to make BT synonymous with the broadband technology ADSL, but Oftel disagreed, saying BT is allowed to "trade on its brand".

BT is certainly going to push the regulatory envelope. It has already won a concession from Oftel that it can send generic marketing materials about the BT Retail no-frills service to its 19 million customers using their phone bills.

Several years, a lot of debt and a new chairman and CEO later, BT is returning to its core business of services that use its biggest asset, the UK phone network. BT's new CEO, Ben Verwaayen, has made broadband a key priority, boldly forecasting that by summer 2003 BT will sell 1m ADSL connections through its wholesale arm, up from 210,000 now. About 140,0000 of those have so far been sold through its portal service, BT Openworld.

Clearly with the forthcoming BT Retail offer, Verwaayen is trying to keep BT in the forefront of broadband against rival ISPs such as Freeserve and AOL, as well as to catch up with broadband cable, which has about 228,000 broadband connections using its cable lines. By 2004/5, BT hopes to earn £490m in new revenues from broadband access fees, digital support for customers and micropayment services.

BT has a lot of ground to make up. With 1.6m narrowband (or so-called dial-up internet connections) BT Openworld is the sole ISP among incumbent European telcos that doesn't rule the dial-up roost. Deutsche Telekom's T-Online, France's Wanadoo and Telefonica's Terra Lycos are all streets ahead in terms of connections. Broadband is the next battleground. The UK ranks well behind Germany, Sweden, France and even Belgium on broadband connections, according to Jupiter MMXI research.

BT Openworld had already gone through one major strategy rethink late last year when its costly plan to be a destination portal for a wide array of content was purged, along with its then president Ben Andradi and CEO Andy Green. Andradi left BT, but Green went to run BT Ignite, its key corporate customer arm, while Ritchie was given the BT Openworld job. Ritchie says that, despite the paring down of content on the Openworld site (and the cut in staff from 900 to about 400), the fully loaded ISP model has a place, particularly while new internet users are still abundant. "The market is evolving," says Ritchie. "We are trying to get a portfolio of services between BT Retail and Openworld ."

But some in the industry question whether BT Openworld is a long-term player or is simply being slowly restructured to become part of the BT Retail offer. Ritchie seems to support this view when she says that the planned BT Retail no-frills connection service will feature a link to a suite of BT Openworld products on the site's opening or "landing page". The pricing for the portal services, which will include games, music and betting, will be "pick and mix" so people who buy the BT Retail connection product, to be called BT Broadband, can choose to buy some added-value content services from BT as well.

So where does this leave BT Openworld? Several observers call it a "regulatory sop". However, closing it down would be, in the view of one banker, a tacit recognition that the ISP model doesn't work and that BT Retail's plans are effectively more important. "BT is hedging its bets both with the regulators and on the financial side," says the banker. BT Openworld, unflatteringly known as "BT Openwound" inside some parts of BT, has been a big money loser, costing £350m a year to run, and last year chalked up an earnings loss before interest, taxes, depreciation and amortisation of £102m. Ritchie says the new focus and pared-down content strategy should bring the narrowband service into profit this year, while the broadband service could break even by the end of 2003.

But overseeing a drive for more consumers using the fourth of the "big four" internet pulls (she's got games, music and betting, but lacks porn) hardly seems Ritchie's style. "Not yet, not yet!" she cries with a hearty laugh.

More understandable is a multi-million pound software deal signed last week with US software company Motive that could lower the cost of BT Openworld's customer service by 20% and make the service itself much better. Announced almost apologetically as Openworld's new CEO on the last day before the 2001 Christmas holiday, Ritchie's reign seems likely to become a bridging exercise.

Her main problem is to change BT Openworld's image, both within the phone company and with customers. The viciously titled website "BT Openwoe", which offers a forum for customer complaints, is a painful example of what Ritchie is up against. One day she might be justified in posting her own feelings on the site. Now that's the kind of content that could drive consumer uptake.

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