Telecoms group Carphone Warehouse turned up the heat on rival BT today by unveiling a free calls offer to users of its fixed-line service.

In addition to offering users of its TalkTalk service local calls free of charge, Carphone said households would also be able to phone anywhere in the UK at zero cost.

The move comes a day after BT unveiled changes to its pricing structure, including the abolition of its standard rate for residential customers.

London-based Carphone plans to roll out a marketing campaign next week to attract new users to the service, which is expected to have more than 380,000 customers at the end of its current financial year on Tuesday.

Chief executive Charles Dunstone said an offer of free international calls between TalkTalk customers in certain European markets was also planned.

He said: "We expect this to translate into tangible benefits from the overall scale of the business, a reduction in churn and lower average customer acquisition costs."

Rates for all other calls, including those to mobile phones, would remain unchanged and the group pledged to continue offering discounts to BT.

Regulatory changes in 2002 enabled groups such as Carphone to compete with BT in the fixed-line market.

Customers can now pay line rental to BT but have all their calls automatically switched to TalkTalk rates without having to dial a separate access code.

At the half-year stage, Carphone said it expected losses of up to £8 million from TalkTalk in the current financial year, but low operating costs had built confidence in the future of the service.

An offer of free calls would "accelerate the build-up of a substantial, sustainable and profitable customer base", the group said today.

Carphone, which manages customer accounts for mobile networks as well as selling mobile phone accessories, put investors on stand-by for profits ahead of market hopes in a trading update in January.

Thursday March 25, 2004