Italian internet service provider Tiscali plans to acquire the London-based Video Networks HomeChoice broadband video service. Video Networks will merge its operation with Tiscali in exchange for a stake in the company.

Video Networks has been an award-winning pioneer in the delivery of internet protocol television over telephone lines, but has so far acquired less than 50,000 customers in the capital from a potential base of 2.5 million homes. Plans for a national roll-out of the service have been put on hold.

Video Networks has been bankrolled by Microsoft millionaire Chris Larson, who is believed to have invested more than £100 million in the company. Other shareholders include Sony, Walt Disney and Warner Brothers.

Earlier in the year it was reported that the business was for sale for around £200 million, although that figure seemed highly optimistic.

Despite an early start in the field, Video Networks has come under increasing pressure in the broadband market.

BT is preparing to launch its BT Vision hybrid broadband video and broadcast television service, which will no doubt be backed by a high-profile marketing campaign.

Video Networks is just one of a number of companies that have been using deregulation of telecommunications to install their own equipment in BT exchanges to provide services directly to consumers, a process known as ‘local loop unbundling’.

Satellite television operator BSkyB is investing £400 million over three years to provide broadband services, following its acquisition of Easynet for £211 million.

Tiscali was founded in 1998, following the deregulation of telecommunications in Italy, taking its name from a tiny village in Sardinia. It is now a pan-European operation, with a total of 2 million broadband customers, a quarter of them receiving unbundled services. The UK is currently its largest market, with over 1.2 million broadband subscribers.

The addition of the Video Networks operation would allow Tiscali to offer a triple-play of video, voice, and data services over broadband in the UK.

The acquisition of the HomeChoice system could also be used as the basis of video services in other markets. Video Networks has previously indicated that it is exploring the possibility of providing its service as a white label package.

The launch of video services is a possibility in Italy, where FastWeb established an early lead in broadband with video as a key element of its bundle.