The BBC's Ian Pollock: The battle for subscribers is increasing

The Carlton and Granada owned group is also scrapping its £20 connection charge.

In all it is spending an extra £200m with the aim of recruiting two million customers within three years.

Stephen Grabiner, chief executive of ONdigital, said the latest initiative marked "the beginning of the end of analogue TV".

"Free boxes and low price digital televisions are now available for all. We expect to get two million subscribers within three years," he said.

The price cutting is a response to the decision taken last month by satellite rival BSkyB to give away its own set-top boxes.

The decoder boxes make it possible to watch the increasing number of digital channels on televisions built to receive analogue signals.

Both companies are battling to win as much of the market as possible before the launch of cable digital television in the autumn.

In addition to the give-away, ONdigital said it had secured a deal with electronics company Bush to sell an integrated digital TV - a TV set with a set top box built-in - for £299.

The price tag, which the company said was lower than the average costs of an analogue TV, will include a subscription to ONdigital.

ONdigital, like Rupert Murdoch's BSkyB, also plans to sell their subscribers a telephone service, offering discounts of up to 40% on standard British Telecom charges from July.

To help fund its latest moves ONdigital is raising its subscription charges by £2 a month for new subscribers, but is promising existing customers they would see their charges frozen until 1 January 2002.

With the new rates, the basic subscription package will cost £6.99 a month.

OnDigital said last month that 110,000 people had signed up to its 30 channels launched in November.

This is well below the 551,000 subscribers who have adopted BSkyB's 200 digital satellite channels since their October launch.

BSkyB said it will turn off its existing analogue broadcast network by the end of 2002.

There was a positive reaction from the City for the initiative. Lehman Bros analyst Julien Roch said: "This levels the playing field. The whole bet is that you lower your profitability, but you bring forward the number of subscribers, and on a net present value basis, it's worth it."

Although ONdigital took three weeks to confirm it would match BSkyB's offer, it plans to be first to the market with free equipment, trumping its rival by one working day.

ONdigital's move was welcomed by BSkyB.

"Consumers will have the chance to make a direct comparison between the content and services offered by the two digital providers. We relish this prospect," said BSkyB.