Sky faces threat to monopoly from ITV free satellite link with BBC

ITV is considering joining the BBC in a new non-subscription venture which will seek to break BSkyB's monopoly on satellite broadcasting and could lead to the end of ITV's payments for having its services included on the Sky platform.

ITV is considering joining the BBC in a new non-subscription venture which will seek to break BSkyB's monopoly on satellite broadcasting and could lead to the end of ITV's payments for having its services included on the Sky platform.

The BBC is determined to press ahead with its own free satellite (FreeSat) offering despite the fact that Sky launched such a product last week. Free satellite gives consumers access to dozens of channels, such as CNN and the BBC stations, which are broadcast free-to-air and unencrypted with just a dish and a digital decoder box.

In what could amount to a double blow for James Murdoch, the chief executive of Sky, the development of FreeSat comes at a time when ITV is renegotiating the £17m annual payment to have its satellite broadcasts encrypted by Sky. Encryption gives Sky the ability to stop the ITV signal bleeding over into other countries and ensures the right regional programmes reach the right homes.

However, the BBC went "in the clear" - unencrypted - two years ago and it believes other public service broadcasters should follow. The channels are still available to Sky users. It is understood that ITV is carefully examining this possibility, attracted by the prospect of a £17m saving which would boost profits by 5 per cent.

Sky had hoped that by providing its own free satellite product - which costs £150, including installation - it would stop the BBC or other broadcasters moving into the satellite territory. Mr Murdoch has set an ambitious target of 10 million subscribers by 2010, from the current 7.4 million. Attracting customers with a free service could be a useful stepping stone from which to persuade them to pay for subscription channels.

The BBC-backed satellite offer would seek to undercut Sky on price and would involve a one-off payment. It would endorse cheaper decoder boxes which do not have a smart-card slot for conversion to pay-TV.

Carolyn Fairbairn, the BBC's director of strategy, said: "A plurality of distribution systems is better. It's about consumer choice. Outside Freeview and cable areas, at the moment the only choice consumers have [for digital TV] is Sky."

The analogue television signal will be switched off altogether by 2012, leaving only digital broadcasting. Some areas of the country will go digital-only from 2007. Freeview, the free digital terrestrial service, does not reach 25 per cent of the country - more than 6 million households.

Ms Fairbairn said it was unlikely that the BBC could launch its FreeSat until early next year. She said if ITV also broadcast unencrypted, it would make it a "much better" proposition - otherwise households taking the BBC-endorsed FreeSat would not be able to receive ITV.