BT and Virgin Media have thrown another legal block in front of a £10m investment in Birmingham's broadband infrastructure.

The two telcos are dragging Birmingham City Council back to the European Commission by challenging a decision to allow the City council to improve broadband pipes. It means that the £10m investment plan in Birmingham's broadband will be delayed, if not dropped.

The £10m that the council planned to plough into Birmingham's broadband comes from a £150m pot that George Osborne set aside to fund broadband in 20 cities across the UK, part of his "super-connected cities" initiative. In Birmingham the cash was intended in particular to help small biz in the Digbeth, Eastside and The Jewellery Quarter areas of the city by providing them with affordable high speed broadband.

Birmingham City Council accused BT and Virgin Media of standing in the way of 1,000 new jobs and an estimated £200m yearly benefit that the service would create.

Councillor James McKay said he was "extremely disappointed" by Virgin's new lawsuit, because the Council had consulted extensively with VM to prove that the market alone couldn't provide the service:

The city has worked in a very positive and collaborative way with them 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.

We developed a robust State Aid case, based heavily on evidence that Virgin Media and others provided to us that clearly demonstrates a strong market failure.

BT said that the decision to allow government money into a private market is "substantially flawed":

It would have discouraged commercial investment in high speed networks at precisely the time when such investment is required. It would also have set a dangerous precedent. We hope an alternative solution can be found as soon as possible so that companies such as BT can invest further in Britain’s cities.

Virgin Media spokespeople argued that the planned investment was being made in the wrong place:

We fully support the Urban Broadband Fund and government ambitions to bring superfast broadband to areas not currently served by existing fibre networks. So it’s disappointing that Birmingham City Council has put forward a scheme which is not in the interests of local people and we believe, as a result, the European Commission has made a decision based on inaccurate and misleading information which could waste public money.

Birmingham Council got the go-ahead from the EC last month, the challenge by BT and Virgin was decided last week and has come to light today.

The ruling could affect other cities in line for a broadband handout - including Belfast, Manchester and Bristol. ®