The move brings together Telewest Communications, the largest cable company, with Bell Cablemedia and Nynex CableComms in a broad collaboration which will involve combined purchasing and greater co-operation over marketing strategies.
The three partners have chosen General Instrument Corporation, a large US electronics company, to supply the set-top boxes, which enable customers to decode digital TV signals. Telewest said General Instrument planned to supply hundreds of thousands of boxes by the end of 1998.
Further suppliers may be asked to sub-contract manufacturing later, though the announcement is a setback for Pace Micro Technology, the small UK company which had hoped to sell its digital decoder to the cable companies and BSkyB.
Significantly, the three cable operators also pledged to continue the partnership after Bell and Nynex merge with Cable & Wireless's telephone subsidiary Mercury later this year to form a pounds 5bn cable giant, C&W Communications. Other cable companies are also likely to join the alliance over the next few months, including Comcast and General Cable, offering a single digital alternative to BSkyB.
A spokesman for Telewest said: "We are working very closely with the new executive team at C&W Communications. We are now working together on other services, including a joint electronic programme guide which steers customers through the new services on offer."
Telewest said one big advantage of its service was that customers would not have to buy the boxes, instead paying the cost of the equipment as part of a monthly subscription. BSkyB intends to ask customers to pay about pounds 200 for their boxes, a price subsidised to encourage a strong take- up of the service.
When the service begins in October or November, cable customers will be offered many more television channels than the average of 50 on analogue cable TV, along with internet access and video-on-demand. Telewest said it was talking to banks, supermarkets and other retailers about further interactive services to come in 1998.
News of the supply deal came as a surprise to industry experts, who had thought BSkyB would be the first group to announce a firm agreement to supply set-top boxes for its digital satellite service, planned to start towards the end of this year. Rupert Murdoch, head of News Corporation, BSkyB's largest shareholder, is thought to have chaired a board meeting at the group in London last Tuesday to finalise a deal.
Analysts played down the rivalry with BSkyB, arguing that the new digital cable service will follow existing cable policy in offering Sky programming alongside other channels.
Mathew Horsman, media analyst with stockbrokers Henderson Crosthwaite, said: "This is consistent with Sky's view that the company will be the platform for all kinds of delivery systems, including satellite and cable. But this is a great deal for the cable industry and a sign that operators are getting their act together and consolidating."