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The discussions are part of efforts aimed at boosting BT's fledgling mobile service and driving up its broadband sales according to sources close to the talks.

A deal would mean that BT customers will start sharing access to their home Wi-Fi networks, and its BT Fusion mobile customers can make cheap calls from their phones when they are in the vicinity of one of these Wi-Fi 'hotspots'. A deal between the two will be an unprecedented endorsement from a large European telecoms operator for Fon's ambitious business model that seeks to turn millions of private home Wi-Fi networks into public wireless 'hotspots'.

BT Fusion users, who have mobile phones that can connect to a short-range wireless Wi-Fi network as well as the cell phone network, could use their phones on the home networks of around 250,000 global Fon members, which it calls 'foneros', 10,000 of them are already in Britain.

BT hopes that a tie-up with FON will boost the number of Wi-Fi hotspots for its mobile users, and with it the BT Fusion customer base, which remains under 100,000.

BT and FON declined to comment.

At the moment, the Madrid-based company sells a subsidised Wi-Fi router directly to consumers who connect it to their existing home broadband connection.

Foneros share their home Wi-Fi connections with other foneros who move into the 100-metre range around a Wi-Fi access point, and in return they are able to access the Internet via others' connections when they are away from home.

Foneros can also sell access to non-foneros, with revenues shared by them, FON

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and the internet service provider.

Such private arrangements between foneros are under the radar of broadband operators, many of which officially prohibit the sharing of Internet bandwidth.

But the sources said BT's talks with FON involve relaxing the restriction on sharing bandwidth, which could help FON vastly increase its network of foneros in Britain.

'BT has the ability to remotely add software to its broadband routers. They are going to push FON software on to the routers and ask users whether they want to roaming-enable their router,' said one source, who asked not to be identified.

The only large former monopoly in Europe not to own its own mobile network, BT could in return boost the attractiveness of its BT Fusion Wi-Fi-GSM mobile service which offers customers mobile calls at cheap landline rates when within the range of a BT broadband wireless router or a BT Openzone Wi-Fi hotspot.

When not, it hooks on to partner Vodafone's mobile network and functions as a regular mobile phone.

'Fusion is one of the things which could benefit from a deal like this as the Wi-Fi network will widen. Anything that can broaden the network is fantastic as BT can't put hotspots everywhere,' said the second source.

BT, which is Britain's largest DSL broadband provider but is losing business to cheaper rivals, could also boost customer loyalty for its broadband as its Fusion service is restricted to its own broadband base.

'BT has been looking at ways to extend our Wi-Fi footprint in the UK inside and outside the home ... We have also been examining possible partnerships to promote Wi-Fi. However, we can't give any more firm details of specific deals at the moment,' BT said in an emailed statement.

FON was founded by Argentine entrepreneur Martin Varsavsky, founder of major Spanish telecoms and Internet companies Jazztel and Ya.com, and has raised capital from Google, Skype, Index Ventures and Sequoia Capital.

'Fon has been approached and is in discussions with leading ISPs (internet service providers) in the UK and the US to collaborate,' said Faisal Galaria, vice president for business development at Fon.