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Yahoo to Begin Offering Internet Phone Service

Posted on: Wednesday, 21 December 2005, 09:00 CST

By Yuki Noguchi

Yahoo Inc. is joining a growing field of companies offering phone calls between a computer and a traditional phone, ramping up competition in an arena that is starting to expand beyond just voice communications.

The Sunnyvale, Calif., company already offers Web search, e- mail, instant messaging, blogs, music and entertainment. And now the company is challenging Skype Technologies SA, the leading provider of Internet phone service, by offering lower prices and opening the technology to an established base of instant-messaging subscribers.

The Yahoo service requires a high-speed Internet connection and a prepaid account with Yahoo to place calls. For $29.90 a year, subscribers can also get a telephone number that allows them to receive calls to their PC.

The software to place and receive the calls is free. And Yahoo -- like Skype -- will offer free, computer-to-computer calling among its users. Yahoo will undercut the more-established Skype by charging about 1 cent less per minute for calls placed to a regular phone.

Luxembourg-based Skype, however, has a head start in Internet telephony, with 216 million users worldwide who have downloaded its software and more than 2 million customers who pay to make outbound phone calls. Earlier this year, online auctioneer eBay Inc. acquired Skype, enhancing its brand recognition in the United States. Last week, Skype introduced a test version of video calling.

Another competitor, Gizmo, which launched in July and has 300,000 users, is also trying to challenge Skype.

"Skype has been the unchallenged leader in PC-to-PC calling," said Kate Griffin, an analyst with Yankee Group Research Inc. "Yahoo, if they want to gain traction here, will have to unseat that. On the other hand, Yahoo has a lot more users that come to their site for many other reasons."

For Yahoo and eBay, telephone service adds some revenue, although the companies view the services as enhancements that tie into their other online offerings, said Jan Dawson, an analyst with research firm Ovum. For example, music lovers could discuss their favorite tunes, or buyers and sellers on an eBay auction could talk about products before closing, he said. Offering phone service between computers and traditional phones makes Yahoo's online empire more appealing to users, which in turn makes the business more valuable through cross-sales of products or services, said Brad Garlinghouse, Yahoo's vice president for communication products.

Yahoo currently sells co-branded Internet service through phone companies providing DSL Internet connections. PC calling could create new opportunities, such as linking e-mail with home voice mail or adding musical ring tones to the phone at home, he said.

The Yahoo service will be available on a trial basis by the end of the year to its instant-messaging users in the United States, as well as parts of Europe and Asia. Yahoo will charge as little as 1 cent per minute for calls from a computer to a land line or wireless phone.

Source: Buffalo News

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