BT steps up pay-TV battle with European soccer offer

* Champions League soccer games free for BT TV customers

* Available to BT broadband customers for 5 pounds a month

* Sky (Other OTC: BSYBF - news) says Champions League games have been losing viewers (Adds analyst, background, details, updates shares)

By Kate Holton

LONDON, June 9 (Reuters) - Britain's BT raised the stakes in its battle with arch-rival Sky on Tuesday by making European Champions League soccer matches available for free to its television customers.

The move, after BT outbid Sky to the exclusive UK rights to the competition by paying a record 897 million pounds ($1.4 billion), is the latest bet by the telecoms firm on using the appeal of soccer clubs such as Barcelona and Bayern Munich to draw in customers to its TV and broadband packages.

Revealing its plans to the strains of Handel's Zadok the Priest, the tournament's theme tune, BT said customers who take BT TV would be able to watch Champions League matches for free, while those who take BT Broadband could see them for 5 pounds per month.

With 7.7 million broadband customers and 1.14 million TV customers, BT is betting it can persuade more subscribers to upgrade to also take a TV service, where customer loyalty and customer bills tend to be higher.

The offer may also help to persuade some Sky customers, and those on other platforms such as Virgin Media and TalkTalk, to move over to BT for the full suite of telephony, fibre broadband and TV.

"We view the launch as positive for BT with aggressive pricing aimed to gain subscriber momentum," said RBC Capital Markets analyst Michael Bishop. "We see this as incrementally negative for Sky."

Bishop rates BT shares as "outperform" and Sky's as "underperform". At 1505 GMT, BT stock was up 0.3 percent at 440 pence, while Sky's was down 1.3 percent at 1,013 pence.

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The 169-year-old BT stunned the sporting world in 2012 when, having recovered from two major profit warnings in 2008 and 2009, it won the rights to show 38 live English Premier League matches a season, its first foray into sports.

It trumped that in 2013 when it won the right to show all the Champions League matches from 2015 to 2018, paying more than double the previous price to beat Sky and free-to-air broadcaster ITV (LSE: ITV.L - news) .

Its sports channels can now be seen in 5.2 million homes, helped by wholesale deals.

"BT Sport is delivering exactly the kind of growth that we anticipated," said BT Consumer CEO John Petter, explaining that his division had seen five consecutive quarters of top and bottom-line growth, helped by demand for sports.

Revealing its line-up for the games, it named former England captain Gary Lineker as a presenter alongside playing stars Steven Gerrard and Michael Owen and managers Glenn Hoddle and Harry Redknapp, who will work as pundits.

The group also said it would launch a new Ultra High Definition channel to showcase its live sport, threatening to steal the mantle of technological innovation from Sky which has helped it to become the dominant pay-TV provider in Britain.

Sky, which has the rights to the majority of the domestic Premier League matches, has said audiences for European soccer nights have dwindled in recent years as English clubs largely failed to reach the latter stages of the tournament.

But analysts believe Sky could face some push back from customers who question why they should pay so much when one of the biggest events in the sporting calendar is no longer available on its platform.

($1 = 0.6545 pounds) (Editing by Paul Sandle and Mark Potter)