Sky and Virgin mull broadband price war

With speculation rife that Carphone Warehouse is to spark a price war with free broadband, both Virgin and Sky are reportedly also about to start some hardcore cost cutting as the market heats up.

According to a report in the Guardian, BSkyB, which bought ISP Easynet for £211m last year, could be about to launch free or ultra-low price connectivity into the UK market.

The paper says the broadcaster is currently mulling free broadband for its highest-paying customers -- those subscribing to premium services such as sports or movies -- with the consumer service expected to launch in the second half of this year.

The news of Sky's move into the broadband market comes as no surprise -- the broadcaster announced as early as October last year it intended to act as an ISP. However, BSkyB has so far given no further details as to what form or pricing its new service will take.

According to Iain Fogg, analyst at JupiterResearch, the free model associated with Carphone and Sky is one way for ISPs to lure entrenched dial-up users, which still make up 35 per cent of the UK Internet population, to switch to broadband, as well as presenting an opportunity for cross-subsidising services.

"At the moment, it comes down to an appeal to dial-up users. Price is one of the key, if not the key factor. In the UK market, if someone wants to pay more for a higher speed package, they are probably already doing that," he said. According to JupiterResearch, 33 per cent of dial-up users said they will not switch to broadband if it means paying greater subscription costs.

It seems quadruple-play behemoth Virgin TV, the result of the union between Virgin Mobile and NTL:Telewest, is also looking to tempt new customers with free services.

The ISP is believed to be planning to offer users free TV when they sign up for the company's quadruple-play offering of TV, broadband access and fixed and mobile telephony.