What do you do if you are the big fish in the telecoms pond, then one day a shoal of competitors swims in to nibble away at your revenues?

If you are BT, you set your best brains on to the problem and tell them to come up with something even more attractive than the flashy new wireless handsets that have been offered to your existing customers and which make your traditional telephone service look decidedly tired.

That is exactly what the UK's dominant telecoms provider did last year when it realised its customers were moving away from the old school-style phone plugged into the wall.

Next April, the group and its development partners will unveil the result of more than 12 months of hard research – a range of new handsets, services and wireless paraphernalia developed under the working title of "Project Bluephone".

BT's marketing department has already been hard at work whipping up anticipation. According to their own publicity, the Bluephone will be the "everywhere phone".

It will be the "everywhere phone", say BT, because of its ability to work with a whole range of wireless environments.

Take it on the road and, thanks to a partnership with Vodafone, it will work through the traditional mobile phone network. Take it to a wireless hotspot in a hotel, café or airport and it will seamlessly start routing its calls over the internet via the Wi-Fi network – with all the broadband-style connection speeds and cheaper international conversations that that implies.

Most importantly for BT, you will also be able to take it home and route your calls, via a Bluetooth wireless connection, through the ordinary phone line. At the end of the day, you will have one phone, containing one address book for all your contacts and, crucially, one bill.

The key selling point will be the convenience. If all goes to plan, customers will start relying on their BT Bluephone for all their communications, dropping their separate mobile phone account and sending some of that valuable revenue back into BT's coffers.

That would be a welcome reverse for any fixed-line provider. According to a recent EU survey, the number of mobile-only households in the UK grew to 7 per cent in 2004, from 5 per cent in 2002, equivalent to about 1.2 million people abandoning established phone lines in favour of using their mobile.

Even when people do have an old fashioned phone fixed to their wall, research shows they are starting to ignore it. Up to 30 per cent of UK mobile calls are made from the home, according to another set of analysts' figures.

None of that is good news for companies like BT. "We want to maintain and grow our share of the fixed line and mobile revenues," says John Lee, BTs general manager of convergence.

"The project is seen as being very strategic, putting BT back into the mobile market place, and increasing mobile customers and fixed revenues as well."

If it is a strategy, it is one totally focused on defence. And those defences still need to be tested.

According to Angel Dobardziev, an analyst for London-based Ovum, there are a whole host of technical obstacles for BT to overcome before they can truly call Project Bluephone a success. Top of the list is the technical challenge of using one handset to switch between so many telecommunication environments.

"Handover between the cellular and the fixed network during the call is notoriously difficult to achieve," says Ms Dobardziev. BT and a group of other providers (including Swisscom, KT, Cegetel, AT&T, NTT, Brasil Telecom and KPN) are working on a standard technology to overcome this problem. "However we are yet to see it in practice."

Next is the ever-present problem of battery life. So many services crammed into one small console can quickly eat up a lot of power. "Battery life is an issue with WiFi/cellular convergent handsets, as WiFi is an energy-hungry technology," says Ms Dobardziev. "However, all major vendors (Nokia, Motorola, Samsung to name but a few) are furiously working on this issue and we expect them to solve the problem in the next year or so."

Last, but far from least, is the issue of call charges. BT has said nothing about the size of a typical Bluephone bill. "The key commercial issue is who pays for the mobility," says Ms Dobardziev. "Simply put, if you ring a Bluephone user you may not know whether he is on the fixed or mobile network, hence you will not know the charge you will incur."

The range of issues still to be resolved has proved little obstacle to the BT publicity machine. By April 2005, says John Lee, the Bluephone-powered empire will start fighting back.

"Erring on the conservative side, I predict thousands of Bluephones will be in use next year, and millions in Year Three. There are 27 million households with a BT line, so if each household buys just one handset, that's a lot of potential sales."