Tesco has signed a new five-year deal with Cable&Wireless (C&W) to become the retail giant's wholesale broadband network provider, in a development that clears the way for Tesco to mount a stronger challenge in the UK home broadband market.

According to Tesco, the partnership will enable its telecoms subsidiary Tesco Broadband to “develop propositions with very competitive pricing, attractive services and best in class customer service”.

It will also “allow for the provision of bundled broadband and home phone services from Tesco for the first time”, the grocery giant claims.

Currently, Tesco’s product range entails standalone broadband deals that offer a maximum broadband connection of up to 2Mb. Pricing ranges from £17.97 and £24.44 per month over a 12-month contract. A free wireless router and free connection is standard across all offerings.

The arrangement with C&W, however, will enable the firm to launch broadband bundles that bring together cheap landline calls and a home broadband connection. An on-demand TV service may also be a feature of the new products.

In the UK, the market for bundled broadband packages, which typically offer significant savings for consumers, is dominated by the larger telecoms, including Virgin Media and BT.

However, Tesco’s entry to the sector, coupled with the brand recognition enjoyed by the nation's largest supermarket chain, has the potential to shake up the sector and could set the scene for a price war, as internet service providers vie to retain their subscriber bases.

Lance Batchelor, Chief Executive Officer of Tesco Telecoms and Tesco Mobile, said: "We’re delighted to be partnering with Cable&Wireless for our broadband and home phone services.

“We share a commitment to providing excellent customer service and the new network capabilities will allow Tesco Broadband to offer enhanced services for our customers across the UK.”

Tesco Broadband’s stated forward of focusing on providing a superior customer service compared with rival broadband suppliers augurs well for its renewed broadband sector push. Some ISPs' failure to address problems with support for subscribers is believed to be behind an industry-wide churn rate of 20 per cent per annum.

Tesco’s telephony division Tesco Mobile has consistently scored strongly in this respect. In September, the unit’s Bury call centre was named Best Centre for Customer Service at the 2009 European Call Centre Awards.

Alex Buttle, Marketing Director at Top 10 Broadband, said: Tesco’s push into the broadband and home phone market is a huge positive for consumers looking for value in their home digital services.

"Increased competition on bundle price between broadband providers will mean cheaper deals and additional service benefits as ISPs strive to offer more value. Tesco’s plans will surely cause a huge shake up of the broadband market.”