BSkyB is due to up the ante against cable rival Virgin Media with a surprise bid for Italian-owned broadband provider Tiscali.
According to a report in The Times this morning, the deal could be signed within weeks, and would give Tiscali's customers access to Sky channels including Sky One and Sky News.
Virgin Media's future is also in question after reports over the weekend speculated that the broadcaster might receive a $15bn (£7.5bn) bid from a private equity consortium spearheaded by the US finance firm Providence Equity Partners, which was involved in a bid for Virgin Media last summer. At the time, Providence Equity had offered $31 (£15.70) a share for Virgin Media.
The private equity firm is understood to be looking to make an offer for the broadcaster along with fellow private equity companies Cinven, Blackstone and KKR. The current Virgin Media share price of $24 (£12) is considered to be attractive to private equity bidders.
Sky and Virgin Media have been locked in a bitter public relations battle since the satellite broadcaster pulled its basic channels package, including Sky One, Sky Sports News and Sky News, from the Virgin Media platform at the end of February.
The battle continued on Friday as Sky released two signed letters from its chief executive, James Murdoch, to Virgin Media chief executive, Steve Burch, stating that Sky was still "fully prepared to negotiate" with the cable broadcaster.
Sky said in a statement: "Over the past two months, Sky has reached out to executives at Virgin Media to encourage talks to restore the Sky basic channels to Virgin Media customers. Sky has also worked with the National Consumer Council to try to find a solution."
Murdoch said that in an effort to break the stalemate Sky had proposed to "split the difference" between each network's final offer, before negotiations broke down.
In a letter sent to Burch, dated May 10, Murdoch stated that Sky was concerned at Virgin Media's "apparent reluctance" to negotiate and that the lack of negotiation signalled a "willingness on Virgin Media's part to deprive cable viewers of Sky's basic channels indefinitely".
Virgin Media has since posted its response to Sky's comments, with a spokeswoman for the cable broadcaster saying: "Sky's proposal would have been unacceptable at the end of February and it is certainly unacceptable now, given all that has happened since. Throughout the original negotiations, we consistently made it clear that the withdrawal of the Sky channels and aggressive promotions aimed at our customers would cause damages that would be reflected in any subsequent negotiations.
"Virgin Media has consistently worked to return the basics channels to our customers. Today's announcement from Sky comes after Sky's rejection of an arbitration offer and subsequent efforts to structure discussions. We have also worked closely with the NCC over the last several months to bring the parties together.
"We are, moreover, surprised that this has become public and can only conclude it is a crude attempt to exert undue pressure by putting negotiations under the public spotlight. This is the quickest way to undermine the goodwill essential to a successful outcome and raises questions about Sky's commitment to striking a fair and reasonable deal."
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