BSkyB poised to enter broadband price war

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Competition in the UK broadband market will step up a gear tomorrow when BSkyB, the satellite television company, unveils its broadband offer. Its move will pitch it head to head with Carphone Warehouse and Orange, which have both recently launched so-called "free" broadband offers.

Sky is thought likely to follow its rivals in offering free broadband to its high-spending customers as part of a bundled package including television and telecoms services. Customers who subscribe to cheaper packages may need to pay a subscription fee, but that may be priced relatively cheaply.

Carphone and Orange both let customers subscribing to their telecoms products access broadband for free. But Carphone will come under pressure this week to change the claim that it provides "free broadband forever" after the Advertising Standards Authority upheld complaints against the retailer. The ASA is tipped have ruled against Carphone, which requires customers to sign up for a £20.99 monthly line-rental and calls package, on top of paying a £29.99 connection fee.

Morgan Stanley, the investment bank, expects Sky to play hardball in the broadband market. "We expect BSkyB to price aggressively against existing players, to market the services intensively to gain a large subscriber base quickly and to offer bundled packages to encourage the 47 per cent of Sky pay-TV subscribers who already have broadband to convert."

With BT potentially encroaching on BSkyB's core television market when it launches BT Vision later in the year, broadband internet access can be used to shore up its customer base. Sky completed the £211m purchase of the business broadband internet company Easynet in January but has kept a lid on its plans.

Rupert Murdoch, Sky's chairman, said earlier this month that the broadband launch would have a "significant" impact on profits. The company expects the service to be cash flow negative in the first three years after launch.Morgan Stanley forecasts a £83m operating loss as a result of the launch in the current year, rising to £102m next year.

Sky's entry into the broadband market adds a new player into an already competitive sector. BT, NTL and a host of smaller players such as Pipex and Plusnet have seen the likes of Carphone, Orange, O2 and now Sky enter the market during 2006 and Vodafone has also announced its intention to offer broadband services.

Sky is also fighting Orange and Carphone Warehouse to take over the customer base of AOL UK.