BSkyB is to launch a new free entertainment channel called Sky 3 on Freeview next month.
Freeview has been leading the conversion to digital television, taking 70 per cent of all new subscribers since launching in November 2002.
Zenith Optimedia predicts that homes with Freeview will total 8.8 million by 2008 compared with 8.7 million for Sky.
Anologue services will make up only four per cent of homes by 2010 making it increasingly feasible to reach the government's target for switching off analogue services by 2012.
Sky is expected to achieve its target of eight million subscribers by the end of this year.
But some analysts believe that its target of 10 million by 2010 is less likely given Freeview's popularity and the erosion of Sky's exclusivity on live Premiership football.
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