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BT Strikes at Internet Phone Rivals It Cuts Some International Rates to Half of Skype's Prices

Posted on: Thursday, 29 September 2005, 12:00 CDT

By Chris Oakes

The day of reckoning between Europe's entrenched old telecommunications companies and the new breed of nimbler Internet- based phone companies is coming. Just not yet.

BT Group, the former British telephone monopoly that lost 350,000 customers to its rivals last quarter, has officially declared war on its Internet competitors, announcing on Tuesday that it would offer "international calls for half the price of Skype," the calling service that eBay agreed to buy two weeks ago for $2.6 billion

But there was a catch. BT said the rates would apply only to prices on its own existing PC-based phone service through December, rather than on its regular phone lines, meaning users must be technology-savvy enough to already be using the voice over Internet protocol, or VOIP, services.

The rate change affects BT's Skype-like service, BT Communicator, which, like Skype, lets its customers call conventional phone numbers using their PC and the Internet.

Under Communicator's new pricing, a 60-minute call to a U.S. land line, which would cost 72 pence, or $1.27, with Skype, would cost only 30 pence. A similar call on BT's standard international fixed- line service would cost l3, or $5.30.

"Skype is the real competition for us," said John Petter, chief operating officer for BT's consumer division. "We have to drive this change." Telecommunications analysts have been saying for some time that a shakeout is looming for the sector, as the economics of nearly free Internet-based calling have turned the industry upside down. But the entrenched operators, often hampered in their desire to respond by rigid labor laws and regulatory hurdles, have struggled to address the challenge.

BT's move, while modest, was important because it showed the company at least was facing up to the problem. "There's going to be a bunch of customers who are going to move quickly to use voice over IP," said Dimitri Ypsilanti, a telecommunications analyst for the Organization for Economic Cooperation and Development in Paris, "and you have to get these customers before they leave.""It's really showing that a Goliath is as flexible and innovative as David," he added.

"I think that's an important marketing coup for them." BT's Communicator service, like Skype and new entrants including Google Talk, allows BT's British customers to call domestic and international numbers using their PCs and a broadband Internet connection.

The rate change does not affect the international rates of BT's conventional fixed-line service, its primary source of telephone revenue. Ypsilanti said that while BT had responded to the VOIP phenomenon well ahead of other national telecommunications businesses, globally the industry is starting to respond to the pressure of inexpensive Internet calling.

"You see Verizon in the U.S. doing the same thing, as well they're all moving that way," Ypsilanti said. Kat James, a spokeswoman for Skype, said in an instant message that the competition was good for consumers. "Free phone calls over the Internet are revolutionizing the telecoms industry, realizing our long-held belief," she said.

Source: International Herald Tribune

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