BT Retail has announced plans for a new super fast broadband service, BT Infinity.

The service, available in two options, and aimed at households, uses fibre optic technology to offer download speeds of up to 40Mb/s.

BT is investing £1.5 bn in creating a new fibre network available to 10m homes by the time of the 2012 Olympics games, rolling out fibre to the cabinet (FTTC) and fibre to the premise (FTTP) services.

BT claims it will have 500,000 homes connected by the end of next month and 4 million by the end of this year. The service has been trialed in Muswell Hill, Whitchurch and Glasgow Halfway.

BT is comparing the new BT Infinity packages directly with those offered by rival Virgin Media. BT Infinity pricing starts at £19.99 per month, a price which BT insists is cheaper than Virgin Media, a saving of £7.47 per month on Virgin Media’s XXL highest speed service according to BT's figures.

Virgin Media’s up to 50Mb XXL service costs £28 per month when you also take a Virgin Media phone line costing £11 per month vs. BT's Infinity Option 1 which will offer download speeds of up to 40Mb/s from £19.99 per month when taken with BT line rental costing from £11.54 per month.

The Infinity Option 1 £19.99 per month BT deal comes with a 20GB monthly usage allowance, subject to a fair usage policy. Option 2 costs £24.99 and is listed as unlimited, subject to the same fair usage policy.

The cheaper BT £19.99 per month option also comes with a £50 connection charge. Both options come with a 18-month contract.

Upstream speeds, at up to 10Mb/s (2Mb/s on the £19.99 per month package), will be the fastest in the UK, more than 6 times faster than Virgin Media’s fastest service, giving customers far greater interactivity BT insists.

The cable giant hit back, accusing BT of misleading consumers because Virgin Media's service is actually faster. BT's service runs at 40Mb per second while Virgin Media's is 50Mb per second.

"We're not sure why people in the UK would want to wait for BT's 40Mb service which hasn't launched yet, when they can already get Virgin Media's great value 50Mb service," said a Virgin Media spokeswoman.

"Last summer we completed the roll-out of our next-generation service to 12.5m homes and people throughout the country are already enjoying all the fantastic things you can do online with the UK's fastest broadband service."

BT promised BT Infinity will transform the consumer experience of the Internet, espicially those with multiple computers/internet devices, offering high-quality streaming of popular video content from iPlayer and YouTube and downloads up to seven times faster on iTunes, with online gaming up to 30 per cent faster.

"The internet is essential to our customers’ lives and they are demanding more and more as richer and even more compelling services become available. BT Infinity gives customers the capacity and reliability they need in an instant and at a great value price they can afford," Gavin Patterson, chief executive officer, BT Retail insisted.

"We want to give our customers the best possible online experience and are committed to rolling out super-fast speeds across the UK."

BT also announced plans to roll out a new super fast broadband service to business which will be known as BT Business Total Broadband Fibre.

From 25th January, new and existing BT Total Broadband and BT Business customers in an enabled exchange areas will automatically be eligible for the up to 40 Mb/s broadband service, although existing customers will be required to sign a new contract.