The service will link the networks of BT and Vodafone

The link-up will allow fixed-line customers to switch to a mobile network during calls using the same handset.

An access point installed in the home or office will allow phone users to make potentially cheaper calls by tuning into BT's fixed-line network.

When they move out of range of the fixed-line service, their handsets will switch to Vodafone's mobile network.

The new service - dubbed Project Bluephone - would enable customers to link seamlessly with Vodafone's GSM or 3G networks.

Mobile presence

BT - Britain's dominant fixed-line telecoms group - said the alliance would help it generate £1bn ($1.7bn) in revenues over the next five years.

This is an excellent coming together of two strong brands from the mobile and fixed-line worlds Pierre Danon, chief executive BT Retail

News of the new joint venture came as Europe's sixth largest mobile phone group, MMO2, reported full-year profits of £95m.

BT spun off MMO2 at the end of 2001, but has since re-entered the mobile phones market in a bid to offset falling revenues at its core fixed-line business.

It said the link-up would help BT build on its presence in the business and residential mobile phone markets, where it currently has 170,000 customers.

'Strong brands'

Pierre Danon, chief executive of BT Retail, said: "It is a first relationship of its kind, going way beyond any normal service provision deal, as we will work closely on a number of fronts, with Vodafone UK providing the network services for BT's internal and external requirements."

He added: "This is an excellent coming together of two strong brands from the mobile and fixed-line worlds with complementary strengths."

Bill Morrow, Vodafone UK's chief executive, said: "This enables Vodafone UK to maximise its network and service assets while generating additional revenue from a new source."

However, he said Vodafone remained "fully committed to a mobile strategy".