CARPHONE WAREHOUSE will this week launch a land grab on the broadband market that will provoke a price war for high-speed internet access, and could lift the company into the FTSE 100.

The company, increasingly moving beyond its roots as a mobile-phone retailer, is expected to offer “free” broadband as part of a bundle with its Talk Talk landline service.

The promotion, which will be backed by extensive advertising, is intended to build on Carphone Warehouse’s ambition to establish Talk Talk as the leading consumer alternative to BT Group. At present, Carphone has only about 75,000 broadband customers, trailing far behind BT Retail with 2.3m and NTL, which has more than 2.8m after its recent acquisition of Telewest.

In anticipation of an announcement on Tuesday, some industry analysts believe Carphone and its chief executive, Charles Dunstone, are hoping to replicate the impact of the launch of Freeserve in 1998.

From a standing start, Freeserve quickly became the market leader in providing dial-up internet access. BT was almost alone among “incumbent” telecoms operators in being overtaken by a smaller rival.

Until now, Carphone has been hampered by having to resell BT’s wholesale broadband product. However, it is investing £60m to install its own broadband equipment in up to 1,000 BT exchanges, allowing it to reach perhaps 70% of the population.

This move — known as local-loop unbundling — will give Carphone much more control of the speed, price and service standards of the broadband products it is able to offer.

BT is currently constrained in its ability to respond to Carphone’s challenge. Until 1.5m local loops (or lines) are unbundled, BT will remain subject to price controls imposed by Ofcom, the industry regulator. At present, only about 300,000 local loops have been unbundled, the overwhelming majority of them in the past six months.

Dunstone is widely recognised in the telecoms industry as a formidable competitor. Since Talk Talk was launched in February 2003, the business has attracted 2.5m customers, helped by the distribution strength of Carphone’s 600 UK stores and the recent acquisitions of Onetel and Tele2.

Carphone is understood to have dubbed its broadband push “Independence Day”, since it will offer customers independence from BT. The tag suggests that Carphone’s new broadband deals will become available on July 4, America’s Independence Day. Through its wholesale arm, BT supplies about 70% of Britain’s 10m broadband customers, through brands that include Wanadoo, AOL and Tiscali.

Rumours about Carphone’s plans have been an important factor in the recent strength of the company’s shares, which closed at 306¾ on Friday, up by more than 50% since November. Now valued at £2.7 billion, Carphone is on the verge of joining the FTSE 100.

However, some analysts are concerned about the disruptive effect of the company’s broadband offensive. Christian Maher at Investec Securities said: “We now expect a massive escalation in local-loop unbundling and see its arrival as fundamentally negative for BT and the resellers such as PlusNet.”

Wanadoo, AOL and Tiscali are all pushing ahead with their own unbundling initiatives, as is Easynet, the telecoms company bought by BSkyB last year. Sky plans to launch its own broadband service in the second half of the year.

BSkyB is 37.7% owned by News Corporation, ultimate owner of The Sunday Times.

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