British Sky Broadcasting is acquiring the O2 broadband and fixed line telephony business for up to £200 million, to become the UK's number two broadband provider, ahead of Virgin, which is also being acquired.

BSkyB has done the deal with O2 owner Telefnica and the transfer of business also covers the BE consumer broadband brand.Telefnica UK's consumer broadband and fixed-line telephony customers total around 500,000.

BSkyB will pay £180 million to Telefnica, with an extra "contingent amount", not exceeding £20 million, that "may be payable" dependent upon the successful delivery and completion of the customer migration process by Telefnica UK.

Post completion, O2 and BE customers will be migrated onto Sky's fully unbundled network, supported by a nationwide all-fibre core, which reaches 84 percent of all UK homes, claims BSkyB.

BSkyB says it has around 4.2 million broadband customers and 4 million telephony customers.

Jeremy Darroch, BSkyB chief executive, said: "The acquisition of Telefnica UK's consumer broadband and fixed-line telephony business will help us accelerate growth. We believe that the O2 and BE consumer broadband and telephony business is a great fit."

Ronan Dunne, chief executive of Telefnica UK, said: "As we focus on delivering best-in-class mobile connectivity, including next generation 4G services, we believe this agreement is the best way of helping our customers get the highest quality home broadband experience from a leading organisation in the market."

Emeka Obiodu, an analyst at Ovum, said that the purchase will increase competition between BSkyB and Virgin.

Obiodu said: "This strengthens the hand of BSkyB in the market as the company is now able to boast of having a bigger TV customer base, and more broadband customers than its main rival Virgin Media. Such a prospect will concern Liberty Global a bit after it moved to take over Virgin Media in February."

Obiodu said the pay-TV/broadband market was now hotting up, with a straight three-way fight between BT, BSkyB and Virgin. BT, the largest broadband provider, has spent heavily to win TV rights, and earlier this week took over ESPN's UK and Ireland TV channels.