Plans by Cable & Wireless to expand as a player in the broadband market look likely to be further undermined as O2 moves towards choosing BT, Cable’s rival, as its partner.

Although O2 — Britain’s biggest mobile phone group by customer numbers — has talked to both companies about the wholesale provision of broadband, it is understood to favour BT.

Analysts believe that an announcement about a tie-up with the fixed-line group — its former parent company — could come as early as this week, when the mobile carrier gives investors an update on its broadband strategy.

At the presentation, Peter Erskine, the head of O2, will talk about the integration of Be, the broadband provider that it acquired in June for £50 million. He will also talk about potential business models for the firm’s broadband rollout and about plans for “converged” products.

The mobile group, which is owned by Telefónica, of Spain, is not expected to launch a broadband service until the spring. It says that it does not want to rush into a launch and risk the same service problems as companies such as Carphone Warehouse, which dived headfirst into the market.

Failure to win O2 contract will come as a big blow to Cable & Wireless. It has lost out already on a similar contract with Vodafone, which also chose BT.

Like its mobile rivals Vodafone and Orange, O2, which has 16.8 million customers, has turned to broadband as a retention tool aimed at locking-in customers in the notoriously fickle British mobile market. O2 needs a wholesale partner to fill in the gaps in its Be network, which is still being developed.

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