£20.99 package for unlimited international and UK calls as well as broadband

Carphone Warehouse has launched a package of phone and internet services that will kick off a price war with its major competitors.

The company will charge £11 line rental, plus a monthly fee of £9.99, for a service that includes unlimited local and national landline calls, unlimited international landline calls to 28 countries and up to 8Mbps broadband access.

The move follows yesterday's rumours within the telecoms industry that the company would offer a free broadband internet service to users, and Carphone Warehouse is billing the offering as "free broadband".

This will put Carphone Warehouse at a serious price advantage over its competitors, which generally charge £10 a month line rental and £14.99 for internet access.

"The residential telecoms market in the UK will never be the same again. From today, broadband is a right, not a privilege," said Charles Dunstone, chief executive at Carphone Warehouse.

The company also stated that the services will run 24 hours a day instead of being restricted to use at certain times.

"Our approach to business has always been about how little we can afford to charge our customers, rather than how much we can get away with," said Dunstone.

"So today we are cutting more than 60 per cent off the cost of the average UK residential telephony and broadband bill, and providing unlimited calls to 28 international destinations."

The move follows the company's decision to install its own network equipment into BT's exchanges under the system designed to promote competition by unbundling the local loop.

Carphone Warehouse is in the process of fitting its kit into 1,000 exchange areas at a cost of £50m, according to company estimates.

Dunstone said that, based on current forecasts, he expects to reach the initial target of 1,000 exchanges by May 2007, covering nearly 70 per cent of the UK population. The first customers will go live with the new service at the beginning of July 2006.

Customers living outside the unbundled telephone exchange areas will initially be connected to BT's wholesale IP Stream service, and then migrated to the Carphone Warehouse service at a later date at no extra cost.

The announcement came as part of the Carphone Warehouse's fourth-quarter trading statement. The company estimated operating profit of £30m to £40m from broadband in the 12 months to March 2008.

It will also target 3.5 million residential telecoms customers by March 2009, with over 50 per cent of those expected to be using broadband.