Telecoms "red tape" is holding back the development of the UK's broadband communications capacity, according to a report published today.

Fundamental reform of the telecoms regulatory environment is needed if the technology is to make a crucial contribution to the UK economy in the next decade, the Adam Smith Institute.

"British Telecom break-up is essential to [the] broadband revolution," says the report.

The call has been dismissed by BT, which believes that such a move would be too costly and risky.

"All contributions are welcome to the broadband debate but we do not agree that BT should be broken up. BT plays an active role at every level of the broadband business and the UK has the most competitive markets in the world," a company spokesman told ePolitix.com.

The free market think tank is concerned that Britain lags behind in the world league of broadband penetration - at 21st out of the richest 30 countries - a situation that could impact on UK plc's international economic position.

"We have fallen well behind our major competitors in broadband service provision, and we are set to lose more ground. Under today's rules, this - and our economic performance -will inevitably deteriorate," said the ASI's director, Dr Eamonn Butler.

The report, "Broadband Britain: Finding a way forward", absolves the current regulator of responsibly, saying it has "an impossible job.

"The emphasis on promoting competition has ignored profitability. The result is that BT has retained all the profits for the sector and the competition is not viable," argues the report.

The lack of profitability means that the financial markets running scared of investing the capital needed make Britain a communications world leader - with a £21 billion bill, £750 per home, to take the UK into the 21st century.

"We need a more aggressive regulatory regime that will deliver a level playing field for profitability in telecommunications. Specifically, the Department of Trade and Industry must instruct Oftel to prepare draft regulations that will require BT to restructure its prices," concludes the report.

"BT should be made to discriminate in favour of its competitors. The result will be £25 a month broadband for all, and probably the break-up of BT."