BSkyB is expected to unveil its cut-price broadband package on 18 July in a move set to intensify competition in the UK's already crowded broadband market.
The move follows Sky's acquisition last year of broadband provider Easynet designed to give the broadcaster a foothold in the unbundled internet access market.
With around 50 per cent of UK households currently subscribing to broadband, Sky is entering an increasingly buoyant, but competitive, market.
Citigroup analysts believe that Sky's main motivation is to protect its eight million customers from the threat of TV-over-internet (IPTV).
More than half of Sky's digital satellite TV subscribers already have broadband in their homes, and Citigroup suggests that the main aim of offering a broadband package is to prevent those customers moving to IPTV services such as BT Vision, Homechoice and Telewest's Telepo rt.
Sky chief executive James Murdoch, son of Rupert, said that making Sky's key premium content available via broadband will retain the company's highest-paying subscribers and help recruit new customers.
However, Sky's shareholders may not be so thrilled about the huge investment required for a move into internet access.
Sky is predicted to spend £400m on its broadband launch over the next two years, making it "the most expensive churn management tool ever seen in pay TV" , according to analysts at Credit Suisse.
"While it's the right thing to do in the long term, competition will eat away any economic advantage in the short term. This could drive away some investors. "
Sky shareholders received no dividends between 1998 and 2004. In a March 2006 statement, investment bank Goldman Sachs said it was "pertinent" for shareholders to worry that "broadband could be another area where short-term cash delivery to shareholders is sacrificed for longer-term returns".
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