BT has launched the biggest challenge yet to Sky's 20-year dominance of British sports broadcasting, promising to "give football back to the nation" via live Premier League matches that will be free to its own broadband customers.

Having won the rights to 38 live Premier League fixtures per season, the telecoms company is spending more than £1bn over three years to turn itself into a broadcaster, with Rio Ferdinand, David James and Michael Owen joining a team that will broadcast from London's Olympic Park.

Three channels – BT Sport 1, BT Sport 2 and the ESPN channel in the UK and Ireland, which BT has acquired – will be available only via BT Broadband or through Sky's satellite dishes, and will broadcast the Premier League and FA Cup, as well as football from Germany, France, Italy, Brazil and Scotland's Premier League. It will also show women's tennis and women's Super League football as well as an array of minority sports from Moto GP to the Ultimate Fighting Championship.

It has invested heavily in rugby union, tying up exclusive coverage of the Premiership from next season and launching an audacious bid to establish a new European competition, as it attempts to succeed where Setanta and ESPN have previously failed in taking on Sky.

Viewers who sign up for BT Broadband, which costs £10 a month for a standard connection and £15 a month for superfast fibre-optic lines, will not be charged, allowing BT to claim it is making Premier League football free for the first time in history. Homes that do not want a pay-TV package can either buy a set-top box or watch on tablets, phones and internet-connected TVs via the BT Sport app. Sky customers unwilling to switch to BT, whose own pay-TV service has limited access to Sky Sports in a contract that expires in 2016, will be charged from £12 a month on top of their satellite subscription.

"UK sports fans have had a rough deal for too long," said BT's chief executive, Ian Livingston. "Many have been priced out of the market, but we will change this by giving away BT Sport free with our broadband. Sports fans are the winners today."

At the Queen Elizabeth Olympic Park in Stratford, the first signs of a legacy are emerging as tarmac is ripped up and replaced with turf and mature trees and BT prepares to move more than 300 staff into the former broadcasting centre, which will house a 7,000 sq metre facility about a third of the size of the BBC's Television Centre in west London.

Lights, cameras and computers will be powered from renewable energy sources, and the building will contain the world's largest L-shaped studio with enough room for four tennis courts, should newly recruited tennis commentator Martina Navratilova be called on to demonstrate the speed at which she can still serve an ace.

The hard hats will make way for microphones and clipboards on 1 July, when rehearsals begin before BT's first Premier League match on Saturday 17 August. Anchored by Jake Humphrey, who has been poached from the BBC, BT's presentation promises a new style of coverage.

Its cavernous hi-tech studio will house a purpose-built artificial pitch, on which pundits including former Manchester United midfielder Owen Hargreaves and former England goalkeeper David James will physically demonstrate where players are going wrong. "After 20 years, it's time to shake things up," said James.

Promising a more "open" and "inclusive" style of coverage than Sky, the telecoms company claimed customers who get their broadband and sports from Sky could save over £100 a year by switching. It insisted the complicated array of options on offer, including the availability of two different TV services – BT Vision and YouView – would not confuse consumers.

Premier League chief executive Richard Scudamore, who has brought in record TV rights income of around £5.5bn over the next three years, said it was a "very compelling proposition".

In its 21 years, the Premier League has never been shown live on free-to-air TV and has been the engine that has powered Sky's dominance of the pay-TV landscape. With broadcaster Clare Balding joining former rugby international Lawrence Dallaglio and Humphrey in fronting the channels, BT said it would take its cue from coverage of the Olympics by giving it a more family-orientated feel and giving more airtime to women's sport.

"BT has a huge advantage," said Balding. "Everyone knows what it stands for and everyone has already got it in their home. It is a British company and it is a very family-friendly company, and they will go about sports broadcasting in a way that will appeal across age groups and certainly to male and female viewers."

Predicting the England women's team would win a world cup before the men's squad, Balding said the sponsorship of Women's Super League, announced on Wednesday, would help professionalise the sport.

BT's impact is likely to be felt most strongly not in the living room but on the high street, where it will offer its content to pubs and clubs for as little as one fifth of the prices charged by Sky. Landlords will be offered 12 months for the price of nine, with free set-top box and installation.

The telecoms group says its investment in sport is about attracting more broadband customers, rather than making a profit by selling channels. It has yet to negotiate distribution deals with Virgin Media and TalkTalk, both of whom offer Sky channels to their customers.

Out of 20m homes with a broadband connection in the UK, BT already has 5m and the success of its £738m gamble on the three-year Premier League contract will be judged on whether that number rises.

Sky, which will still screen 116 live games per season in a £2.3bn deal, was publicly dismissive of a challenge that it is taking very seriously behind the scenes. It noted that BT has had several attempts at making inroads into broadcasting in recent years, while it has stolen millions of broadband customers from its rival.

"BT Sport is not 'free' and customers are smart enough to realise they'll pay for it through more expensive broadband and phone services," said Stephen van Rooyen, head of Sky's sales and marketing group. "For us, sport isn't a marketing gimmick to promote another product. We're long-term supporters and our sustained investment has benefited sports fans and British sport at all levels."