TESCO, Britain’s biggest retailer, is to shake up Britain’s phone market with a revolutionary service that allows users to make free calls over the internet.

The supermarket wants to challenge the dominance of BT by encouraging people to swap their traditional landlines for the net service, which allows users to make free calls to anywhere in the world. The product, which works by converting voice into data and sending it over the internet like an e-mail, will be available off the shelf from Tesco stores from today. All consumers need is a broadband internet connection.

Tesco is not the first to offer this kind of service; several market players, including Skype and Vonage, already have it. BT has also offered a similar service for a while, but until recently it has been reluctant to promote it for fear of undermining its traditional sources of revenue.

Experts said that, compared with rival services, the Tesco tariff was not fiercely competitive: although calls between users within Britain and internationally are free, calls to regular landlines are charged at 2p a minute and calls to mobile networks at 10p a minute. Other providers charge an upfront fee with an all-inclusive calls package.

The Tesco service, which will initially be available in 350 stores, also requires a user’s PC to be switched on, which some rival services, including BT’s, do not.

However, analysts said that Tesco, with its huge network of stores and access to millions of customers, was well positioned to take the niche technology mainstream. Blair Wadman, an analyst at Uswitch, the call-price comparison service, said: “Though the tariff is not fiercely competitive with other broadband services, it is competitive with regular landline services, and this is really all about its retail presence which gives it the ability to make this service mass- market.”

Andy Dewhurst, head of Tesco’s telecommunications arm, said that the service was more appealing than others on the market because it was more consumer-friendly. “With our service there is no upfront contract as with some of the others, and you do not have to go into any internet site to start downloading the necessary software, as you do with others.”

Services such as those offered by Skype, which pioneered the technology, he said, were appealing only to “one tecchie person phoning his techie mate in Silicon Valley”, and not to regular consumers. Tesco, he said, could make the service a practical reality for British households.

A spokesman for Skype challenged that claim: “It doesn’t get much easier than with us. If you can enter a website and click on a link then you are there.”

Internet phone services have also proved beyond doubt the appetite for such technology: since Skype was launched in April 2003 it has had break-neck growth. More than 47 million people now use the service.

Although internet calls are considered old hat in America and Japan, Britain has lagged behind in taking up the technology because of the slow growth in “always-on” broadband connections.

However, broadband has taken off and recently overtook dial-up access. Broadband penetration is at 34 per cent of households and research from Ofcom, the telecoms watchdog, found that 40 per cent of broadband users now have voice or chat applications.

Critics of the new technology complain about the quality of the calls, which can suffer because they travel over the internet rather than a maintained network. The service is also only as reliable as the connection — if that goes down then calls cannot be made. With many services, users have to be seated at their PC, sometimes with the added inconvenience of wearing a headset.

The basic cost of making calls across the internet is almost nil. The real cost is in developing software, after which the service exploits available internet capacity. However, charging is necessary to link internet calls with the traditional phone network.

Tesco, which entered the telecoms market two years ago, offers a mobile-phone service that uses the O2 network and fixed-line service that uses the network of Cable & Wireless.

While the supermarket group has trumpeted its success in the mobile market, where it has more than a million customers, it refuses to say how many landline customers it has. Analysts have speculated that the service has failed to take off, although Tesco denies this.

GROWTH OF A NEW SERVICE

In Britain internet calls are catching on: research by Ofcom, the telecoms watchdog, found that 40 per cent of broadband users engage in voice or chat applications. Broadband connections now outnumber dial-ups

Skype was bought last year by eBay, the internet auction giant, for $4.1 billion in a deal that secured huge payouts for its young founders Niklas Zennstrom and Janus Friis. Mr Zennstrom also founded Kazaa, the music file-sharing service

Skype claims that its software is downloaded by 150,000 people every day