* BSkyB shares fall 10 percent after losing Champions League
* BT spending heavily to build up sports channels
* Two rivals battling it out for broadband customers (Adds further details)
By Kate Holton and Keith Weir
LONDON, Nov 11 (Reuters) - BSkyB saw more than 1.5 billion pounds ($2.4 billion) wiped off its stock market value on Monday after Rupert Murdoch's pay-TV group was beaten at its own game with the loss of Champions League soccer rights.
Shares in the British group, which had previously seen off three major challengers to its dominance of the home movies and sports market, tumbled more than 10 percent after it suffered its first major rights auction loss to once-staid telecoms company BT.
The 168-year-old former state telecoms group agreed to pay 900 million pounds, or more than double the previous contract with BSkyB and ITV, to add mid-week ties featuring top European teams such as Barcelona, Manchester United and Bayern Munich to the English Premier League matches it already shows.
For BSkyB, the loss raises the likelihood it will have to pay more for future content deals, including the next Premier League auction which is expected to be held in 2015 for the three seasons from 2016.
It also leaves BSkyB suddenly looking vulnerable in a market it helped to build.
"It is hard to see how this does not signal a British crossing of the Rubicon and the end of peaceful co-existence in the UK telecom and TV worlds," analyst Robin Bienenstock at brokerage Bernstein said.
BT, which has spent years slashing costs and cutting staff after two profit warnings in 2008 and 2009, stunned the sporting world last year when it won the rights to show 38 live Premier League matches a season.
While the new entrant to the market remained a minnow in comparison to BSkyB and its 116 games, the move was an early indication of how BT was willing to spend big to protect its core broadband and fibre services by combining it with an offer of high-quality sports programming.
The move mirrored that of Murdoch's Sky, which built up its business to broadcast in more than 10 million homes by outbidding rivals such as ITV and the BBC for the best sports and movies.
Sky will keep hold of the rights to Formula 1, golf and the most important cricket competitions, including the Ashes, and is likely to increase its investment in original British drama and U.S. programming such as Dexter and Boardwalk Empire.
The group, which has posted a near 130 percent rise in earnings per share in the last four years, said Champions League soccer only made up 3 percent of its total viewing on Sky Sports and said it would rather invest in a different range of programming than overpay for soccer.
"We are no longer the Sky of 20 years ago," a source at the company said.
A more than 10 percent fall in BSkyB's share price puts the group on course for its biggest one-day fall in almost five years.
With annual revenue of more than 18 billion pounds and a market value of 29 billion pounds, BT is also in a completely different league to the three previous groups that had tried to challenge BSkyB - ITV Digital, Ireland's Setanta and ESPN.
Analysts downgraded their forecasts for BSkyB, fearing a hike in content costs and a slowdown in the rate of broadband subscribers Sky could sign up.
By offering its sports channels for free as part of a broadband package, BT was targeting those Sky TV customers who had been switching their broadband service to Sky in droves.
With BT's sports service only launched in August, it has already shown the early impact of its new strategy when it published first-half results in October showing consumer revenue up 4 percent, its best performance in 10 years.
It has signed up 2 million customers to its sports service which is available in another 2 million homes due to a wholesale deal with Virgin Media.
The news of the deal also hit shares in Britain's biggest free-to-air broadcaster ITV, which currently has the right to show one live Champions League match a week, while BT stock was up 0.3 percent.
The last time an English club reached the final of the Champions League, when Chelsea beat Bayern Munich on penalties in 2012, more than 10 million people tuned in to watch the end of the game on ITV1.
The deal could be bad news for armchair sports fans who will likely pay a higher price to watch teams like Manchester United and Arsenal, as BT is expected to charge subscribers for Champions League coverage. One option would be to set up a premium sports service to carry the matches.
It is however good news for soccer clubs which will benefit from the increased prize money passed down by the broadcaster, at a time when they are facing regulatory pressures to curb their losses or risk exclusion from European competition.
"One thing is for sure, unless you are happy to pay the extra for a BT channel on your Sky box, there will either be a wave of customers switching allegiance or thousands of UK football fans looking for a new hobby on Tuesday and Wednesday nights," said analysts at CMC Markets. ($1 = 0.6252 British pounds) (Editing by David Holmes and Erica Billingham)