BSkyB and ONdigital battle over free set-top boxes

The UK's two major digital television operators, BSkyB and ONdigital, are on the brink of a price war following indications from both companies that they will offer free set-top decoders.

Rupert Murdoch's BSkyB will be offering free set-top boxes from 1 June. Sky will also launch its own free Internet service and offer 40 per cent off all standard BT calls - including Internet calls - with digital subscription.

This launch comes with news that despite winning over half a million subscribers for its digital service Sky's profits plummeted from £203m in the nine months to April 1998, to just £69m in the same period this year. Sky put this drop down to investments associated with the launch of SkyDigital.

Mark Booth, CEO of BSkyB, said the offer would remove barriers to customer entry for digital TV and would allow Sky to capitalise on what was the fastest digital launch in the world.

In the meantime, ONdigital confirmed reports in today's press suggesting it will be giving away free set-top decoders from this weekend.

A report in the Financial Times said ONdigital would provide a free decoder to customers buying a digital TV of over £200 and subscribing to its service.

Adam Daum, principle consultant at Inteco, said the marketing strategies smacked slightly of desperation: "Both companies profess to be pleased with the subscription rates so why are they giving away the decoders?"

He also suggested that Sky's offer is designed to take away the advantage that cable operators will have when they launch their digital services in the coming months - cable services won't require a purchase of set-top boxes and are likely to offer Internet access and cheap telephony. "They are trying to undermine all of cable's selling points," Daum said.