CARPHONE Warehouse is preparing a fierce attack on BT with the expected launch next month of Britain’s first “free” high-speed internet service.

The high street phone retailer, which wants to become the main domestic rival to BT, is hoping to woo customers with a combined package of free calls, line rental and broadband, which analysts believe will be priced at less than £25.

BT’s current cheapest offer for line rental and all-inclusive calls, its BT Together Option 3 package, is £25.50 a month - without broadband. That will allow Carphone to promote its offer as one in which broadband is thrown in free.

The plans, which are expected to be laid out at an analysts’ day next month, will come as a blow to BT, which is already under pressure in both its traditional calls and broadband markets.

BT is also facing the threat of local loop unbundling (LLU) - the process by which rivals move into its exchanges and offer their own services rather than reselling BT’s.

There is also a number of other powerful broadband competitors. BSkyB, the satellite broadcaster in which News Corporation, parent company of The Times, owns a 37.9 per cent stake, recently acquired Easynet, the internet business, in an attempt to mount an assault on the broadband market.

Charles Dunstone, chief executive of Carphone, has already said that he plans to invest millions of pounds in installing his own broadband internet equipment in BT’s exchanges under the LLU process. This will give Carphone more control over the services and prices it offers to customers, and allow it to pass on any savings. Mr Dunstone has said that only those players that move into LLU will be able to compete in the future.

Yesterday Mr Dunstone said he could not comment on the details of the new broadband package because they were commercially sensitive.

Since it was launched in 2003, Carphone’s TalkTalk domestic phone brand - which offers customers free calls to other Carphone users - has built up more than one million customers.

Its broadband service, TalkTalk Broadband, launched in 2004, has so far signed up just 75,000 customers but analysts say that the company, with its strong brand and its network of high street stores, has huge potential to build its customer base.

It is understood that Mr Dunstone, who will start to unbundle exchanges in July, is still weighing up the details of the new combined service. He is thought to concede that the economics of significantly undercutting BT are difficult.

However, the group has emphasised that it is taking a “retailer’s attitude”, which analysts believe indicates that it will target volume of customers more than margin.

Because of strict price controls BT is currently unable to offer some of the packages of services that its rivals can. These controls are being removed but not until August.

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