BT steps up battle of broadband

BT WILL launch a fresh assault in the battle for control of the UK broadband market when it unveils its long-awaited video over internet service tomorrow.

Customers of BT Vision will be able to watch films, music videos and TV shows over the internet and the service will be available to anyone with a BT broadband connection and digital set-top box.

But analysts are warning that BT needs to get the service working properly from the start and are questioning whether there is sufficient demand for so-called internet-protocol TV.

All the TV channels currently available to Freeview customers will be on offer for free for users of BT Vision along with paid-for premium content provided by more than 20 suppliers, including Channel 4, Walt Disney, Warner Music and Nickelodeon.

The price of the set-top box will be revealed tomorrow along with details of its content deals.

Insiders at BT said tomorrow's launch will be one of the biggest in its history and that "tens of thousands" of existing broadband customers had already expressed interest in taking the service.

BT, led by chief executive Ben Verwaayen, wants to increase revenues from its broadband division to offset declines in traditional fixed-line phone business as people increasingly use mobile handsets.

BT Vision is designed to lock in existing broadband customers as rivals such as Carphone Warehouse and Orange try to win market share through so-called "free services".

John Clarke, analyst at Brewin Dolphin, said: "BT needs to be seen to get BT Vision right because it needs as many sources of revenue as it can get. It's early days as to whether it will be a swing factor in preventing people migrating from BT to the likes of Carphone Warehouse. BT needs to find new content that other providers can't offer to keep its subscriber base."

The market for digital TV is extremely competitive, with a recent Ofcom report finding that more than 70% of UK households are accessing digital services. Sky has more than eight million subscribers and Freeview, the BBC-backed service, is in 6.5 million homes.

BT believes it can take market share from Freeview because customers will pay for some premium content in addition to the free regular channels. It also believes it can win share from Sky and NTL, who will be attracted to the mix of paid-for and "free" channels.

BT's plans for the launch have been hit by its failure to sign a key content deal with the BBC, which is currently seeking approval to supply content from its regulator, the BBC Trust.

Tim Johnson, managing director of Point Topic, an independent market research group, said: "The whole business of TV over broadband is something we are pretty sceptical about in the short term. What is the business case for doing it?

"I suspect BT are not expecting a huge transformation from BT Vision in the short term. A key thing is, how will they position it? How much are they going to say: 'We are a content business'? How much are they going to say: 'We are a network business'?"

Johnson said BT could take customers from Sky, but said the fact that users of the service will also have to take BT broadband could put some off. He said: "It could have an impact on Sky in places where Freeview isn't currently available."

BT is planning a 'soft' launch, designed to attract a limited number of users in order to avoid the service being swamped. Carphone Warehouse recently ran into problems with the launch of its Talk Talk service, when unexpected demand led to thousands of customers complaining.