Yahoo! and Microsoft Launch Calling to the PSTN

Two announcements within hours of each other by Yahoo! Inc. and Microsoft Corp. of new PC-to-phone and phone-to-PC calling services confirm the extent to which these online giants are gearing up to take on the traditional phone companies head to head in consumer voice services.

They also give both these companies many options to exploit their existing relationships with customers for, not just communication services such as e-mail, instant messaging, and video calling, but also for search (white and yellow pages), shopping and, in the case of Microsoft, desktop applications.

Yahoo! announced a public beta of Yahoo! Messenger with Voice.
The PC phone service will include both in coming phone numbers and outgoing calls to the PSTN. Prices will be about: one cent per minute for calls within the United States and less than about two cents per minute to 30 countries.

Yahoo! also has created what it calls local versions of the service for France, Germany, Hong Kong, Italy, Singapore and Spain, where the company has significant numbers of customers. The new beta service will be available to users in the United States early in 2006.

An announcement by MCI Inc. of a global, multiyear partnership with Microsoft Corp. to provide software and services that enable customers to place calls from a personal computer to virtually any phone revealed that Microsoft is launching a PC-to-phone service and likely also a phone-to-PC service.

The new service, part of Microsofts Windows Live initiative and called Windows Live Messenger, will provide PC-to-phone calling. The services MCI is providing essentially will enable an MSN Out type of product, something akin to Skype Technologies S.A.s Skype Out. Microsoft also might be planning to provide users with incoming phone numbers, to enable users to receive calls from the PSTN.

The MCI announcement described a beta testing period that will lead to a full launch in 2006.

The Windows Live Messenger beta will have limited subscriptions available initially in the United States, and the two companies expect to jointly deliver the PC-to-phone calling capabilities to France, Germany, Spain and the United Kingdom in the coming weeks, according to MCI.

The announcement even went so far as to reveal possible pricing. According to MCI, customers can place calls to and from more than 220 countries with rates starting at $.023 per minute to the United States, Canada, the U.K. and Western Europe during the beta testing period.

Although Microsofts MSN is not the leading PC-based online communication service America Online Inc. (AOL) is the overall leader in terms of sheer numbers it is one of the leading providers with tens of millions of subscribers and represents yet another significant challenge to the established ways of doing business of traditional phone companies. Microsofts strengths in desktop software, which could be linked to this new service the same way Microsofts business VoIP interface links to Outlook or Word, make the launch of this new service even more potent.

Another strength of Microsoft is that Windows has a significant presence in mobile devices, such as handheld computers, which users more and more want to act as mobile telephones. This could enable Microsoft to provide its own Wi-Fi mobile voice service.

Further, users of MSN tends to be younger, computer-savvy consumers, the future generation of phone users, and most now make one of the online services, such as MSN, Yahoo! Inc., Skype, EarthLink Inc. and AOL, one of their primary modes of communication. This generational gap does not bode well for the long-term prospects of traditional service providers.

America Online Inc.
EarthLink Inc.
MCI Inc.
Microsoft Corp.
Skype Technologies S.A.
Yahoo! Inc.

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