Yahoo! to Undercut Skype on Phone Rates

SAN FRANCISCO (Reuters) - Yahoo! Inc. plans to allow computer users to make and receive calls from phones at rates that undercut eBay-owned rival Skype and are significantly below traditional phone companies.

Yahoo said Wednesday a new version of its Yahoo Messenger text, voice and video communications software to be introduced in the next few days will include "Phone Out," with low per-minute charges for calls from computers to phones, and "Phone In," a low-cost subscription service for phone callers to call computer users.

The world's largest Internet media company said it plans to charge one cent per minute to Yahoo Messenger users calling the United States from, say, Russia, or anywhere else in the world and 2 cents a minute to call 30 other countries including Australia, China, France, Germany, Italy, Japan and Korea.

In all the Yahoo Messenger phone-calling service will be available in 180 countries, according to Terrell Karlsten, a spokeswoman for the Sunnyvale, Calif.-based company. Details were due to be available shortly at http://voice.yahoo.com/.

Blair Levin, an analyst with Stifel Nicolaus and a former staff member of the Federal Communications Commission, said in a report to investors that Yahoo's move is part of a broad and growing challenge to traditional telecommunications carriers.

While unlikely to lead consumers to replace traditional phone services on a broad scale, he said, computer-based phone services will put further pressure on phone company revenue, even as they raise regulatory issues about whether to begin requiring Internet services to meet costly phone regulations.

"We believe pricing is dropping to a level where price itself is likely to be less of a factor driving a consumer's choice," Levin wrote. Instead, convenience, ease-of-use, and how well voice-calling can be integrated with other computer services will be what differentiates Time Warner-owned America Online's AIM, Yahoo, Microsoft's MSN and Skype.

Yahoo trades blows with Skype

Yahoo, which has offered some voice calling features via instant messaging software for five years, is seeking to recapture momentum from Skype, which has in two years built up a base of 68 million users worldwide, including several million of Skype Out computer-to-phone, low-cost calling services.

Yahoo Messenger calls to the United States are half the price of Skype's 2.1 cents per minute. But the Skype rate applies to nearly 30 countries, making it comparable with Yahoo rates.

"In a basic sense, Skype is functionally identical to AIM, MSN or Yahoo," said Nick Shelness, an instant messaging analyst with Scotland-based Ferris Research, who was formerly a chief technology officer at IBM's Lotus division.

"All three -- AIM, MSN and Yahoo -- have had audio capabilities for quite some time. They just didn't stress those features," he noted.

Yahoo Messenger also offers e-mail links, text messaging to mobile phones, photo sharing and video calling services. The new low-cost calling services rely on deals struck with a variety of traditional long-distance carriers which Yahoo inherited through its acquisition of Dialpad in June 2005.

"Historically communications have been stuck in a bunch of different silos," said Brad Garlinghouse, Yahoo vice president of communications products, and a former executive at Dialpad.

"The home phone is one silo, the work phone is a silo, the mobile phone is a silo, instant messaging is another silo and mobile phone text-messaging is another silo," he said of how Yahoo plans eventually to tie together communication services.

Phone In, the phone-to-PC service, costs $2.99 a month or $29.90 a year, allowing people to select a personal phone number, and receive incoming calls at no additional charge.

As an example, San Francisco residents using the service who have friends or family in London will be able to choose a local London-based phone number. UK callers to the number would be charged for making a local call.

Travelers can have multiple numbers that allow them to have local numbers in each country they visit, starting first in France, the United Kingdom, and the United States, with other countries to follow, Yahoo said.

The new version of Yahoo Messenger allows users to search for contacts they have entered the system by name, by Yahoo nickname, by phone number or other contact details. Users can then choose to communicate via text, voice or e-mail.

To encourage use of its phone calling services, Yahoo said that, for a limited time, it would offer a free headset to users who sign up for its Phone Out service. Localized versions in various national markets will be available, Yahoo said.