Sky broadband service starting to lift off

BSkyB is adding 20,000 customers a week to its new broadband service, with analysts predicting that it will have 300,000 broadband subscribers by the end of this year.

Compared with rivals such as Carphone Warehouse, Sky's broadband service - which started connecting up customers in mid-August - got off to a slow start. However, reporting results for the first quarter of its financial year, Sky said this was a deliberately "controlled approach" and analysts liked the fact that half of the customers were taking a paid-for, rather than a basic "free", broadband package.

Sky now has 74,000 connected broadband customers, who are taking the service as part of a television "bundle", in addition to the 35,000 users that came with its acquisition last year of the internet service provider Easynet.

Michael Philpott, of the telecoms consultancy Ovum, said: "At first light, Sky's broadband numbers seem a little disappointing. Over a similar period Carphone Warehouse had racked up around three times this number. However, Sky has a different strategy than Carphone Warehouse, and is being much more cautious about how it scales its broadband business."

Carphone launched its broadband service earlier this year and it now has 421,000 customers connected up, though it has been beset by customer service problems. Sky, which was initially only processing 950 order a week, increased its connection rate to 10,000 a week in September and October. It is now processing 20,000 a week - similar to Carphone's current rate - and Sky hopes to ramp this up to 30,000 customers a week by the end of the year.

Bridie Barrett, an analyst at ABN Amro, said the company should have between 250,000 and 300,000 broadband customers by the end of this year. "This is a very encouraging start. The trajectory [of take-up] is the most important thing to consider," Ms Barratt said.

The price comparison website uSwitch said: "Sky should have no problems reaching the one million customer mark in the next 12 months, comfortably placing it amongst the top five broadband providers in the UK."

The costs of broadband roll-out dragged down operating profits by £35m to £180m for the first quarter. However, the period saw the company add 82,000 subscribers for the period, taking its total customer base to 8.28 million, its best first-quarter performance for three years.

Sky indicated that broadband had already proved an effective marketing tool, with 10 per cent of its broadband customers entirely new to Sky, despite the fact that the promotional push has focused on existing subscribers. The company also said that its marketing cost per new customer was halved when it offered broadband with the television offering.

James Murdoch, chief executive, said: "While it is still early, we are pleased with the progress since the launch of Sky Broadband and in just 15 weeks, we've seen a great response from Sky customers. Our preparations, pace of provisioning and investments in service and systems to manage demand are performing well."