will target customers with a voice over Internet Protocol, or VoIP, service, which it plans to start offering from more than 350 stores over the coming months.
The company says call rates will be "slashed to rock-bottom prices compared to existing fixed-line services."
However, Tesco's landline prices do not appear to compare favorably with VoIP provider. Calls to U.K. landlines using Tesco's VoIP product will cost 2 pence (3.5 U.S. cents) per minute, while customers of eBay's Skype are currently charged 2.1 cents per minute when they call U.K. landlines.
Calls to mobile phones are, however, a different story. Skype charges users 25.12 cents per minute to all U.K. networks, while Tesco offers rates of 17.57 cents.
Tesco claimed to not be in competition with Skype but rather that it is responding to demand from its customers.
"Our focus isn't to compete with Skype," said Alex Freudmann, commercial manager for Tesco Telecoms. "We're launching the service because our customers expressed a need. Our customers wanted a simple pricing structure. Our VoIP pricing is in whole pennies--the halfpenny doesn't exist any more--and there's one call rate at all times."
"We focused very heavily on giving customers what they asked for, and kept the installation and the tariff simple, and (a) good value," Freudmann said.
Because Tesco's VoIP traffic will travel over the public Internet, it won't be able to guarantee the quality of service. However, the company claims that the quality will be better than traditional fixed-line telephony because of the data compression rates it uses.
"Assuming you have a reasonable phone, the sound quality is better than a landline. We tested the service in customer test groups and had favorable results. We minimized the data feed--it's compressed as much as possible. It even works very well over narrowband," Freudmann said.
To access the service, consumers will need to buy a $35.10 pack from a Tesco store that includes an $8.79 call voucher and a USB handset. The pack also gives the user a phone number at which non-VoIP users can reach them.
Tesco is also investigating using a VoIP service internally.
Tom Espiner of ZDNet UK reported from London.