Virgin Media cable customers have lost basic Sky satellite television channels as a result of an increasingly acrimonious dispute between the two companies. The Sky News channel was replaced by a message that said: “Sky Snooze try BBC”.

After failing to renew a carriage agreement, Virgin Media is unable to offer the package of Sky basic channels, which includes Sky One, Sky Two, Sky News and Sky Sports News. Premium sports and movie channels are unaffected.

BSkyB proposed a new agreement that would offer Virgin Media cable customers additional channels, including Sky Three and Sky Arts, with the option for high-definition and video-on-demand services. Virgin Media claimed that this would amount to an effective doubling in the price of the channels.

Virgin Media said in a statement: “It confirms our view that Sky have no intention of agreeing a deal on sensible commercial rates and that a withdrawal of these channels is an outcome which they are deliberately trying to engineer in order to suppress competition.”

The statement continued: “over the last five years they are the worst performing general entertainment pay-TV provider on our network. Like any good monopolist, Sky apparently wants to be rewarded for failure”.

Steve Burch, the chief executive of Virgin Media, said: “They continue to demand a price for their basic channels that demonstrates a determination to use their market power to bully competitors and enforce pricing that bears no resemblance to commercial reality”.

“We’re disappointed that we will now be denied access to cable TV homes,” said a Sky spokesman. “We’ve made repeated efforts to reach an agreement but Virgin Media has rejected all of our proposals — including our latest offer of just 3 pence per customer per day.”

“Sky stands by the value of its basic channels,” said Sky, noting that its basic channels are watched for a least two hours a week by over a million people in cable television homes in the United Kingdom. It added that all of the top 25 pay-television entertainment shows on cable have been on Sky One, which carries programmes such as Lost and 24.

Sky is also seeking to renegotiate a lower price for carrying Virgin Media channels on its satellite platform. These include the Living, Bravo and Challenge channels.

Virgin Media is planning to offer a range of premium entertainment programming — including shows such as Lost — on demand through its new Virgin Central cable channel.

Sky said the door was still open for further negotiation. “If Virgin Media decides that it wants to bring back the TV that its customers enjoy, we’re available for talks at any time.”

Both Sky and Virgin Media stand to lose millions financially. More significantly, cable customers could defect to satellite if a satisfactory resolution is not reached.

The brinkmanship comes as Virgin Media revealed that it lost 37,000 customers in the last quarter of 2006. Average revenues per user were up slightly and the cable company showed an operating profit of £9.2 million for the quarter.

The former NTL:Telewest cable company recently re-launched as Virgin Media with a multi-million pound marketing campaign. It is attempting to persuade customers that its combination of television and telephony services offers better value than satellite.