OnDigital is offering customers who attempt to end their pay television contracts three months' service including premium channels at just £1 a month.

The pay-TV operator, which is jointly owned by ITV companies Granada and Carlton, has designed the offer to head off losses among the first waves of customers reaching the end of their 12 month contracts. This is a critical time for OnDigital, which launched in November 1998, as it attempts to build subscriber numbers toward the forecast 1m by the end of the year.

The company yesterday announced that it had increased its subscriber base by 22% in the first quarter to 673,000 homes. A spokesman said the offer was one of several being tied out to test their efficacy in keeping hold of customers.

Granada is understood to hold the 1m mark as the trigger point for a stock market flotation of the business. Carlton has already employed investment bank Morgan Stanley to prepare an outline of options for the company moving forward.

Stuart Prebble, OnDigital's chief executive, said the business was going from strength to strength. "We are right on course to achieve our target of 1m customers by the end of this year and 2m by the end of 2002."

OnDigital has launched two sports channels and is likely to appear among the bidders for Premier league broadcasting rights. Mr Prebble said talks had been held with NTL and ITV companies about joint bids.

Earlier this month, OnDigital launched its email service via the TV and plans to have full Internet access later this year.