BSkyB unveiled plans to bundle free high-speed Internet access with its satellite TV service in the UK and expects to have at least 3 million broadband customers by 2010 as it takes on rivals such as BT Group.
The company, 38 per cent owned by Rupert Murdoch's media conglomerate News Corporation, said today it anticipated investment of £400 million of earnings before interest and tax over the next three years in the new service.
It also said there would be an additional £250 million of capital expenditures, £130 million of which are fixed and £120 million variable based on the number of new subscribers.
BSkyB said it expected the Internet access service to boost earnings starting in 2010, by which point it plans to have 30 per cent of a projected 10 million TV customers signed up at an average acquisition cost of 80 pounds each.
The costs include a BT connection fee, a wireless router, home installation and marketing, Chief Financial Officer Jeremy Darroch said.
The company's shares dropped 4.44 per cent to 517 pence today as costs came in higher than investors had expected.
"It's the amount of money concerned," said one trader, who asked not to be named. "It's at the top end of the range, and so a few people have knocked it."
Sky will offer its approximately 8 million customers free broadband with download speed of up to 2 megabits per second whatever TV package they take and will throw in a free wireless router, which allows users to connect to the Internet anywhere in their house without the need for a network of wires.
"The business case is clear," Chief Executive James Murdoch said in a statement. "We believe our investment will enhance top-line growth, be earnings-enhancing from 2010 and with the benefits of scale, deliver increasingly attractive returns thereafter whilst offering substantial savings and compelling value to customers."
Sky's broadband package, which follows its acquisition of Internet service provider Easynet last year, comes as media and telecommunications companies invade each other's territories and bundle multiple services to woo consumers and stop them from going elsewhere.
Murdoch also told reporters that BSkyB was considering buying AOL's UK Internet access business, which owner Time Warner has said it is reviewing along with other European operations.
"We would look at it purely from an opportunistic basis," Murdoch said. "We don't have huge appetite for acquisitions in this space." AOL UK has 2.2 million subscribers, 1.3 million of which are on broadband.