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Microsoft Free Internet Voice Service Challenges Vodafone

Posted on: Monday, 20 February 2006, 09:00 CST

By Tony Glover - Technology Editor

MICROSOFT has developed a Skype-style free internet voice service for mobile phones that City analysts believe could wipe billions off the market value of operators such as Vodafone.

The service is included in a mobile version of Microsoft Office Communicator due to be released this year. It will take the form of a voice-over internet protocol (VoIP) application that allows Office users to make free voice calls over wi-fi enabled phones running Windows Mobile software. It uses the internet as a virtual phone network as well as accessing e-mail, PowerPoint and other Office applications.

Microsoft chief executive Steve Ballmer dropped his bombshell at the mobile operators annual 3GSM show in Barcelona last week. The significance of his remarks was missed because of his effusive and eccentric delivery.

Trying to downplay the havoc Microsoft Office Communicator Mobile will wreak on the mobile telecoms industry, Ballmer chose a topical Valentines Day theme for his announcement. I love the mobile industry and I love our operator partners, and I want to have that message precede all were about to show, Ballmer said in Barcelona. He went on to demonstrate how a mobile phone running Windows Mobile can be used to make a free voice call over the internet. Ballmer told the audience: That was a VoIP call.

But Ballmers announcement may be closer to a St Valentines Day massacre than a love letter for the mobile operators concerned.

Cyrus Mewawalla, an analyst at Westhall Capital, believes VoIP, when backed by Microsoft, will have a more devastating effect on mobile operators than it did on the fixed-line operators, which saw their voice revenues slashed after the introduction of VoIP services such as Skype.

Internet voice does not even have to take market share to force traditional operators to cut their prices. The mere thought of free voice is enough to make customers push for price cuts, said Mewawalla, predicting a bloodbath for mobile operator stocks.

Operators such as Vodafone and O2 believe they will be able to fight off the threat from Microsofts entry into the mobile voice market.

Peter Erskine, chief executive of O2, told The Business: This is not the first time Microsoft has tried to enter the mobile market and they still have a very long way to go.

Erskine said because Micro-softs service runs on a mobile version of Office, its appeal initially will be to business users rather than private consumers.

But Ballmer last week said: Most people have a personal life and they have a professional life. And they want the device that goes in their pocket to give them one glimpse of their information, whether it happens to be part of their private life or part of their professional life. It is this formula that won Microsoft domination of the desktop.

Source: Sunday Business; London (UK)

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