Digital price war looms with launch of £29 set-top box

Digital terrestrial television could receive a massive boost after one company announced plans to launch a set-top box priced at just £29.

The move could trigger a price war. The digital terrestrial boxes that are now available, from Pace Micro Technology and Grundig, cost £99.

The new box from TVcompass, a small private company, has the highly ambitious target of being in 10 million homes by the end of 2004. It would be available from spring next year, although the company would initially be taking heavy losses on the sales price of the box.

Stephen Voller, the chief executive of TVcompass, said: "You price a product at £29 to go. You don't expect it to hang about. We hope it will fly away."

The cost compares with £37 a month for the most popular subscription to the satellite service BSkyB, which offers more than 200 channels.

The BBC was awarded the licences to run the digital terrestrial service earlier this month, after ITV Digital was forced to close after running up losses of £1bn. The BBC will offer 24 free-to-air channels to viewers of digital terrestrial, where the signal is received through a traditional roof-top aerial. A box is needed to decode the digital broadcast on a regular analogue television set.

The collapse of ITV Digital threatened a key plank of the Government's media strategy, which aims to move all households over to digital television, in order to turn off the traditional analogue signal by 2010.

When the BBC stepped into the breach, the corporation said it hoped to have 5 million households on digital terrestrial by the end of 2007.

TVcompass plans to make its money through the interactivity built into the remote control of its box, which is why it can take big losses on the sales price. The remote, which will have its own screen, offers features such as the ability to shop or place a bet. The offers that pop up on the screen will be linked to whatever TV programmes are being watched.

Rivals were sceptical about the viability of the TVcompass plan and pointed out that the company had yet to secure a manufacturer for its high-specification box.

A spokeswoman for Pace said: "We don't see how this [TVcompass] business model stacks up. It would require very interactive revenues to make it work."

However, if the TVcompass box does prove a success it would pile on the agony for Pace, which has been forced to make several profit warnings over the sale of its devices.