Free broadband offer is on its way from Carphone Warehouse

Carphone Warehouse is to launch a major assault on the broadband market by offering a free service to customers. The deal, which is to be announced on 11 April, will see the telecoms group offer a three-month free broadband trial followed by a rate of just £4.99 a month, half the price of the current best offer available.

To access the free broadband offer, customers need to subscribe to Carphone's fixed-line service, which has a rental cost of £9.99 a month. Carphone currently charges £14.99 for its 1MB broadband service.

Analysts see the move as part of a "land grab" by Carphone. Some believe it could be as significant as Freeserve's landmark launch, in the late 1990's, of dial-up internet access to households that did not involve a monthly subscription charge.

Merrill Lynch said yesterday: "In our view Carphone Warehouse now has a solid opportunity to establish itself as a credible alternative broadband player in the UK."

The group is able to make such a drastic cut in its prices thanks to the process known as local loop unbundling, which has meant that BT has been forced to allow rivals on to its exchanges. The reforms mean that operators such as Carphone can lease the copper lines that connect a customer's home to BT exchanges, giving them end-to-end coverage.

For the first time, alternative telecom carriers such as Carphone will be able to offer their own broadband internet services, which use their own physical infrastructure, as opposed to simply re-selling BT services under their own name.

According to the consumer group uSwitch, the best deal available comes from UK Online, part of the easyNet business that BSkyB bought last year, which offers 1Mb broadband for £9.99 a month, with no download limits. Blair Wadman of uSwitch said broadband prices had already crashed, coming down from some £30 a month at the end of 2004 for a 1Mb connection.

Later this year, Sky will offer a new bundled service, adding broadband to its television offering in what is likely to be an aggressive move on the broadband market.

Some 42 per cent of UK households have broadband. The market leader is NTL, which has 35 per cent market share following its merger with Telewest. Next is BT with 24 per cent.

Merrill Lynch said Carphone has two advantages over rivals such as Wanadoo, Tiscali and Homeserve. It has low subscriber acquisition costs because of its established base of phone customers; and Merrill points out that the group already has a strong brand name.