AOL UK is looking to expand its reach into the homes of consumers by making an investment that could lead to the delivery of broadband based services such as IPTV and video on-demand. The company will spend 50 million GBP to gain access to 20 percent of UK homes in the first half of 2006.

The moves come as AOL's dial-up business continues to decline worldwide and the company investigates alternatives. The investment will be part of what's called Local Loop Unbundling (LLU), in which telecoms and Internet companies can replace British Telecom as the provider of services over a phone line.

AOL says it could offer Internet, telephone service, television, and even advanced gaming over the lines, which will be ADSL 2+ compatible. Speeds of 8Mbps will be possible without upgrades.

Eventually, AOL may spend an additional 70 million GBP to reach more than 50 percent of households in the country. The funding for this UK initiative is coming from parent Time Warner, the company said.

"We finally have the opportunity to bring large-scale competition into the UK's national telephone network. This will drive innovation and efficiency in the market, which I believe will result in consumers benefiting from greater choice, better value and new kinds of digital services," said AOL UK CEO Karen Thomson.

Beta testing has already been completed in two London exchanges, and AOL is tasking 100 employees to carry out the large-scale LLU rollout. There are currently 24m residential phone lines in the UK, and BT currently controls 82 percent of them.