Tesco launches cheap internet phone calls

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Tesco is to continue its march into the world of telecoms with the launch of a cut-price internet-based phone service in the UK.

The country's top supermarket chain is anxious to expand beyond its core food market to deflect attention away from its grip on the nation's shopping baskets.

Yesterday it announced it was breaking into the burgeoning market for internet telephone calls in a move that will increase the pressure on BT. Voice over Internet Protocol (VoIP) barely features on most Britons' radar screens - just 1 per cent of UK customers use internet phones - yet Tesco is convinced it can bring the new technology to the mass market.

It will go head-to-head with other internet calls services such as Skype, owned by the online auction site eBay, Freetalk, which is offered by the retailer DSG International, and BT's Broadband Voice. Tesco will offer customers a pay-as-they-go service for an initial outlay of less than £20. Once they have purchased a £19.97 handset kit, which includes £5 of free airtime, and plugged it in, customers will be able to call other Tesco VoIP users for free as long as they have broadband. Most other VoIP providers charge a monthly contract, with the exception of Skype.

Andy Dewhurst, the chief executive of Tesco Telecoms, said the supermarket group would make the new technology a "service rather than a gizmo". He added: "Consumers have not yet caught on to internet calling but this is now set to change. Tesco internet phone is the future for fixed-line calls. It is so easy to use that people will see this as a pay-as-you-go landline."

Customers will pay 2p a minute for calls to UK landlines at all times and 10p a minute to call UK mobiles, whatever the network. International calls will cost upwards of 2p a minute, unless the call is made via the internet to another Tesco Telecoms customer.

Advocates of VoIP calls believe it will help to boost broadband penetration in Britain. About 60 per cent of UK homes have a computer, but only half of those use broadband. Tesco offers a broadband package, along with home and mobile phone lines.

Tesco began selling its internet phones in some stores yesterday and will soon make them available to purchase online.