FACED with a rising challenge from internet telephony, BT will this week slash the prices it charges on its own online offering in a bid to undercut Skype, the fast-growing London-based firm that has just been bought by Ebay.

DSG International, the stores group that owns Dixons, Currys and PC World, will this week launch its own internet telephony service. According to one senior market source, Dixons and its sister companies will charge £7 a month for up to 500 minutes of voice calls.

The growth in internet telephony, or voice over internet protocol (VoIP), is being spurred on by the rapid adoption of broadband, which now reaches more than 8m British homes and offices. With a high-speed internet connection, firms such as Skype allow users to make calls for no additional cost, at least to other Skype users.

However, Skype charges about 1.2p a minute to make calls to conventional telephone numbers, whether in the UK or abroad.

For customers using Communicator, BT’s own VoIP product, the firm will charge only 0.5p a minute to make calls to 27 countries, including the US and major European nations.

Ian Livingstone, chief executive of BT Retail, said: “We are better than half Skype’s price. We feel there’s been a lot of hype about Skype. This is a good time to remind customers what great rates you can get.”

Skype has attracted attention — and a $4.1 billion takeover by Ebay — because it has been able to attract more than 50m users in just over two years.

BT Communicator — which, like Skype, can be downloaded from the internet — has been available for longer, but it has attracted only 50,000 users.

Like other traditional companies, BT accepts that most voice-call traffic will move to the internet over the next few years. However, it has been slow to promote BT Communicator for fear of cannibalising the billions of pounds it makes from traditional telephony.

Although calls between Skype users are free, Livingstone said BT was often cheaper when calling conventional numbers. A 10-minute daytime call on BT Communicator costs 5.5p, compared with 12p on Skype. Calls to 0845 numbers are similarly more expensive: 30p for 10 minutes on BT compared with 71p on Skype.

Separately, Plusnet, an internet service provider, will also launch a VoIP service this week. Plusnet users will be able to call other VoIP users for free, and will be charged £3.99 a month to make up to 3,000 minutes of calls to national, international and mobile numbers.