BSkyB, the dominant pay-television provider, is to launch its broadband service this year to broaden its offering from television-focused to more of a "whole home" entertainment company.
Sky briefed City analysts yesterday on the £211m acquisition, completed late last year, of Easynet, an internet service provider. Sky is to mount a major assault on the broadband market, which will include offering broadband with voice calls and television over the internet.
Analysts who attended the Sky presentation said investors remained unclear about the costs involved in the company's broadband plans. Sky provided no information about how aggressively it aimed to grow market share or how much it would need to spend to connect each new customer.
It is estimated that providing broadband will cost about £200 per customer, meaning that signing up 500,000 users this year, for instance, would wipe £100m off the £800m pre-tax profits forecast. The costs of rolling out the Easynet network will be an additional substantial sum.
Philip Guest, of Exane BNP Paribas, said the scale of the investment paled in comparison with previous "big decisions" which he said had been successfully pulled off by Sky. For instance, the company put through a £2bn investment in digital television, starting in 1998. But some critics suggested that Sky's need for making new investments is a perennial "jam tomorrow" story.
Mr Guest said: "Sky is taking some of yesterday's jam to create tomorrow's jam but it is not like going back to 1998, when the company had to suspend the dividend. We believe Easynet is a great deal and we are confident it will be rolled out in a value-enhancing way."
The Sky move into broadband will put it in direct competition with BT's core market, just as the incumbent telecoms giant is to move into television with its launch of a television service this year. Sky said its strategy was to serve an "increasingly cash-rich, time-poor society" with a variety of entertainment services.
The company's head of business development, Stephen Nuttall, said Sky would continue to provide most of its television services through its satellite network, which was a more efficient and cost-effective delivery system.