BSkyB has decided to set aside 400 million for the development of Internet telephony and "free broadband" connections for customers using its satellite television services.

The initiative signals BSkyB's entry into the "triple play" area where TV, telephony and broadband are all covered by a single provider. Sky customers will be offered a 2Mb Internet connection with a limit of 2Gb downloads per month. The offering called Sky Broadband Base requires customers to pay 40 as the connection fee and an optional 50 if they want professional installation. However there will be no monthly fees.

Analysts have responded positively to this development. "The business case for Sky looks to make sense, as long as it can gain the required economies of scale, and increase customer ARPU through upselling voice and other value-added services," said a statement issued by analyst firm Ovum. "At the end of the day, success in the UK broadband market is going to come down to four things: scale, correct multimedia strategy, good customer service and of course, brand - Sky are in a good position on all four fronts."

Sky's "mid" product will cost 5 a month with a 20 connection fee, while the fastest max connection will cost 10 per month. James Murdoch, chief executive of BSkyB said the network could stand on its own and refuted concerns that it could get trapped between competitors like BT and NTL. "A lot of incumbent players have been charging a lot of money for a long time for not a lot. It could be uncomfortable for them.," he said. "We can see huge growth in this market from a revenue perspective and from a customer loyalty perspective. We are a new challenger and we can also grow market share."

Jon Florsheim, BSkyB's chief marketing officer felt that the company was offering something very different from their rivals and that the package would be widely accepted. "We are very confident that our customers will be very happy when they receive their letters tomorrow. And the bloodbath will not be on their front lawn," he said.