Sky set to use BT telephone lines

Media giant close to 'cable killing' deal that will provide customers with home banking, email and shopping facilities
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BSkyB, the pay-TV group in which Rupert Murdoch is a 40 per cent shareholder, is working on a deal with BT that will allow its content to be distributed through the former state monopoly's telephone lines.

BSkyB, the pay-TV group in which Rupert Murdoch is a 40 per cent shareholder, is working on a deal with BT that will allow its content to be distributed through the former state monopoly's telephone lines.

The deal, expected to be announced in a few weeks, will open up a range of interactive options for BSkyB such as home banking and shopping and email services. It would also increase the market of homes with potential access to BSkyB's content. However, it would come as a blow to Kingston Communications, the telecoms company, which has launched a similar tie-up with BSkyB in the Hull area and had hoped to extend the service nationwide. A spokesman for Kingston declined to comment.

Tony Ball, chief executive of BSkyB, has made no secret of his desire to exploit DSL technology, which facilitates the upgrading of copper wires for high-bandwidth applications able to relay far more information at much greater speed.

BT's close relationship with BSkyB was illustrated in July when it became the only remaining minority shareholder in Open, the latter's interactive television subsidiary. BSkyB took that opportunity to buy out Open's other investors, HSBC and Matsushita, the electronics group.

A DSL deal for BSkyB would represent a major coup for the pay-TV group in the battle to win digital and cable subscribers in the UK. One analyst described the DSL technology as a "cable killer", suggesting it would help digital operators like BSkyB and ONdigital to match the service offered by NTL and Telewest, the UK's cable providers. ONdigital is also thought to be looking for a deal with one of the other DSL providers like Energis or Thus.

BSkyB shares fell heavily on Thursday after Kirch, the German media group, sold its remaining 3.1 per cent stake in the pay-TV group. The disposal of Kirch's stake marks another cooling in the relation- ship between Leo Kirch and Mr Murdoch. At one stage, Mr Murdoch had been tipped to use his close relationship with Mr Kirch to develop his limited position in the German pay-TV market.

A spokesman for BSkyB said that the company was talking to a number of partners about the possibility of a DSL link-up. A BT spokesman said: "Broad band is all about content, and so we are continuing to talk to a number of parties about it."

A deal would provide a welcome relief for BT, whose shares have been put under pressure by the high cost of third-generation mobile phone licences. Robert Brace, BT's finance director, admitted last week that major acquisitions or mergers were off the agenda for the time being until BT's debt burden was eased. Regulator gets tough over internet access

By Clayton Hirst

David Edmonds, the telecoms regulator, will this week get tough with BT over the way it opens up its monopoly on the use of local telephone cable to provide high-speed internet access,

Rival companies are worried BT is not opening enough exchanges to competition, and privately voiced their concerns to Mr Edmonds, director general of Oftel, last week. According to one insider, Mr Edmonds "pledged to toughen up with BT".

The issue is of great concern to rivals, which see providing high-speed internet access to homes and businesses as a cash cow. Companies lining up to offer the service include NTL, Telewest, Energis, Colt Telecom, Thus and Cable & Wireless.

It is understood that Mr Edmonds plans to write to BT telling it to review a list of "blacklisted" exchanges. BT has rejected about 50 per cent of the sites as being unsuitable to let in rival companies. This sparked a wave of protest among telecoms companies that feared a scramble for sites, leaving some firms unable to offer the high-speed internet service, known as DSL, in areas such as London, Birmingham, Manchester and Edinburgh.

According to research by stockbroker Investec Henderson Crosthwaite: "There is a serious risk that the early allocation of exchanges could result in a highly fragmented outcome where no carrier has sufficient sites to provide realistic DSL coverage."

Telecoms companies are concerned by the BT contracts they are required to sign to let them into the exchanges. They claim that some of the conditions are "unrealistic". The contracts were due to be signed on Friday, but Oftel has extended the deadline to 7 September while the conditions are altered.

Rival telecoms companies are privately critical of Oftel for giving BT too much leeway in the opening of its exchanges to competition.