Sky is in advanced takeover talks with Easynet and is tabling a £150m bid for the group, which offers broadband services to more than 4m homes in the UK.
News of the deal, confirmed by Easynet in a statement this morning, sent its shares surging by almost 30%, up 27.68p to 120.01p.
"The board can confirm that it has received an approach that may or may not lead to a formal offer being made for the company," Easynet said in a statement.
Easynet's footprint is set to extend to 5.8m homes and 850,000 businesses when the company adds 100 more internet exchanges over the year.
The decision to buy Easynet will mark Sky's first step into broadband internet services, allowing the satellite giant to offer broadband, video-on-demand and telephony.
It will also pave the way for Sky to compete against the recently merged cable giant NTL/Telewest, currently the UK's leading triple-play company with more than 5m subscribers.
According to reports last week, Sky chief executive James Murdoch was also considering bidding for OneTel, the telecoms business that Centrica has put up for sale for £300m.
On Friday, BSkyB confirmed it had raised just over £1bn by selling a three-part bond, which it said it could use for acquisitions.
"The group may use the proceeds of the offering for acquisitions of businesses and/or assets in support of its startegy," the satellite broadcaster said.
Sky is still leading the pay-TV market with 7.8m subscribers and is on track to meet its target of 10m by 2008, but it looks like the gap could close if more customers are attracted by NTL/Telewest's offering.
Broadband and video-on-demand supplier Homechoice and Pipex are also believed to be potential targets.
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