BSkyB plots Easynet takeover to head off its cable competitors

British Sky Broadcasting is poised to enter the high-speed Internet market with the £150m takeover of the broadband supplier Easynet. Sources close to the two companies said they were in "serious discussions" and the takeover could be announced as soon as this week, although they cautioned that it was by no means a "done deal".

BSkyB has made no secret of its desire to move into the rapidly growing broadband telephony market, as it seeks to fend off increasing competition from its cable TV rivals. The deal would turn the satellite broadcaster into a direct rival to BT, AOL and Wanadoo. It is thought that BskyB would pay up to £150m for Easynet. One source said: "If the price is right, a deal is to be done."

David Rowe, the chief executive of Easynet, stands to pocket more than £4m from its 2.5 per cent stake in the company once the deal is completed.

The acquisition would allow BSkyB to offer a "triple play" of pay-TV, broadband internet access and telephone services to its customer base of nearly 8 million subscribers.

The broadcaster, controlled by Rupert Murdoch, surprised the City last week when it raised £1bn through a corporate bond issue, and confirmed it might use some of the cash for acquisitions. While BSkyB dominates the UK pay-TV market, it needs to raise its game to stay ahead of NTL, which already offers a triple-pay package and sealed the $6bn takeover of UK rival Telewest earlier this month.

BSkyB declined to comment on Easynet yesterday, but reiterated: "Sky has made clear its intentions to continue to set the pace of change in media content and distribution."

The broadcaster already owns a small telephone arm, SkyTalk, which its chief executive, James Murdoch, is keen to beef up. Acquiring a broadband supplier would enable BSkyB to send programmes down phone lines without relying on BT.

At the moment, BSkyB's subscribers have to plug their set-top boxes into a phone line to receive the fully interactive Sky service.

BSkyB wants to offer a broadband video-on-demand service, complementing its satellite packages. It could also offer free films and live football matches over broadband for subscribers to its Sky Sports and Sky Films channel.

Easynet is an attractive bid target because it is one of few telecoms operators to have invested heavily in "local loop unbundling". The process involves companies installing their own equipment in local telephone exchanges, which allows them to bypass BT by giving them a direct line to customers.

While BT still owns the line, those rival suppliers control it into the home and can offer higher speed broadband connections and a wider range of services. Easynet has installed its own equipment in 250 local exchanges and wants to invest in a further 100.

However, an update from regulators on Friday revealed that operators investing in local loop unbundling had experienced serious problems because BT maintains a stranglehold on the network.

Peter Black, appointed by Ofcom to oversee the process, attacked BT for its "poor performance" in opening up its phone network to rivals.

Other possible acquisition targets for BSkyB include Homechoice, a TV-over-your-phoneline services, and the broadband supplier Pipex.