Supermarket giant Tesco has thrown itself into the fast-growing market for internet-based phone calls, claiming it can slash the cost of the average household bill with a new, broadband-based telephony service.

In a move that will see Tesco go head to head with established telecoms groups such as BT and more recent arrivals such as Skype - the retailing giant today claimed its new service will bring internet telephony to the mass market for the first time.

Tesco has now started selling an "internet phone pack", available in its stores for £19.97. Each pack contains a phone handset, installation CD, a guide and £5 of free "airtime". Customers who use Tesco's loyalty Clubcard can also use this to top up their allowance.

Users just load the software onto their computer, register their details and then choose their own phone number. The handset is plugged into the USB socket on a PC and calls can be made immediately. Customers can then top up their credit online using their credit or debit cards.

Calls using the pay-as-you-go service will cost 2p to UK landlines and the top 20 call destinations at all times. Calls to mobiles in the UK will be 10p a minute, also at any time.

Tesco is aiming to take advantage of the arrival of "voice-over-internet protocol", which means that computer users with a broadband connection can use the line to make cheap telephone calls to other people with a similar set-up.

Users of Tesco's new service will need to have a broadband connection.

Andy Dewhurst, the chief executive of Tesco's telecom division, said the new service will "finally make this amazing technology accessible to millions of households throughout the UK and allow everyone to benefit from free or low-cost internet calls.

"As consumers catch on to the internet phone trend, people will see a real difference in the amount they are spending on their calls."

Tesco reckons subscribers could cut their bills by £218.40 a year on hour-long calls to the United States made once a week at the weekend.

It compares the price of its service with BT's Together Option 1 which charges 9p a minute for a weekend call to America as against its price of 2p a minute to one of its top 20 destinations.

Tesco claims that internet phones should be the "breakthrough" technology for this year amid the belief that millions more people will start using the internet to make phone calls.

The retailer will face fierce competition from established players such as BT, which has been fighting hard to build up its customer base for broadband and has a service of its own that doesn't need a computer.

There has also been a surge in popularity for Skype, whose software is available to download free of charge. While calls to other Skype users are free, customers pay a reduced charge for calls to fixed line phones and mobiles and are unable to use the service for 999 calls.