Sky warns broadband offer will hit profits

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The Independent Online

BSkyB, the satellite television group, will announce its plans for broadband this month, when it may be forced to offer "free" internet access to match the deals launched by rivals.

Rupert Murdoch, Sky's chairman, has told investors the company will lay out its broadband consumer strategy on 18 July.

Mr Murdoch, who was speaking in Sydney to shareholders in Sky's parent company, News Corp, warned the broadband launch would have a "significant" impact on profits. City analysts believe broadband will cost it up to £100m in its first year, depending on how aggressively it is marketed. Any "free" offering could take costs beyond £100m but this kind of deal may be confined to Sky's premium subscribers - the company's top-tier package costs £42.50 a month.

Sky's broadband is expected to be available shortly after 18 July. Most analysts expect the company to bundle broadband with its existing television service.

In the past few months, Carphone Warehouse has launched "free" broadband access to its £21-a-month landline phone subscribers, while Orange has made broadband available at no extra cost to mobile phone customers who pay more than £30 a month.

Sky's main pay-TV competitor, the cable company NTL-Telewest, bundles broadband access with television and telephony in a "triple play" offering. However, Sky was not able to match this, as it had no telecoms infrastructure until it bought easyNet late last year. The cable company does not claim the bundled internet access is "free'.

UBS, the broker that reported Mr Murdoch's comments, reckoned Sky could undercut the price of close rivals such as NTL and BT by up to 60 per cent and still make an "attractive" profit margin of 20 to 30 per cent. Analysts at UBS said: "Unbundling will allow Sky to extend its reach in urban areas into blocks of flats and will enable it to offer a triple-play service for the first time. It will increase competition, principally in urban areas and particularly for basic television services, and will undermine the relative position of cable, Sky's main competitor."

Competition in the broadband access sector has exploded as a result of "local loop unbundling", whereby BT's competitors install their equipment into local telephone exchanges to offer internet products.

Mr Murdoch's companies have invested heavily in the Net since early last year.