The proposed merger between European high-speed internet provider Chello and the non-US operations of Excite@Home has been scrapped.

It would have formed a new company, Excite Chello, and would have the largest broadband cable service provider outside the US. However, clashes over management direction and adverse market conditions appear to have killed the deal.

Mark Schneider, chairman and chief executive at UPC, Chello's parent company, said: "This has been a complex transaction with a number of difficult business issues to resolve.

"Although both parties worked hard to resolve the outstanding issues, we were unable to reach agreement."

Excite@Home said Chello/UPC had asked it to look at alternative proposals, but felt a deal was no longer in the company's best interests.

US analysts said the difficult overall international market meant that making such a significant effort in Europe may have been too much of a burden for Excite@Home.

Under the terms of the July agreement, each company was to invest 100m euros (£62.7m) to own 43 per cent of Excite Chello. A third company, Liberty Media, was also to invest 200m euros in the form of a convertible bond issue in exchange for about five per cent of the new venture. It would operate in 15 countries and employ 1000 staff.

The new company was then pencilled in for a flotation before the end of the year, but it would appear that market conditions have rendered this option unworkable.

The decision muddies Chello's development plans further. The July agreement originally replaced a scheduled flotation for Chello early this year, which was itself postponed and then cancelled.