Sype Launches Free Call Promotion in US, Canada

By Eric Auchard

Skype, the Web telephone company, said on Monday it would allow consumers in the United States and Canada to make free phone calls, a promotional move that marks a new blow to conventional voice calling services.

The offer, which extends through the end of 2006, covers calls from computers or a new category of Internet-connected phones running Skype software making calls to traditional landline or mobile phones within the United States and Canada.

Previously, users of Skype, a unit of online auctioneer eBay Inc., were required to pay for calls from their PCs to traditional telephones in both countries. Calls from North America to phones in other countries will incur charges.

Skype already offers free calling to users worldwide who call from computer to computer.

The company is seeking to accelerate usage in the North American market, where adoption of its voice-over-Internet technology has lagged other regions of the globe. Based in Luxembourg, it counts more than 100 million registered users globally, including 6 million in the United States.

Henry Gomez, general manager of Skype North America, said he believes the move would rapidly accelerate adoption of the service. Skype will pick up the interconnection costs of making calls to phone networks owned by other carriers, he said.

"Skype anticipates that completely free calling in the U.S. and Canada will expand Skype's increasing penetration in North America and solidify Skype's position as the Internet's voice communication tool of choice," Skype said in a statement.

The offer is likely to put price pressure on rival voice-over-Internet phone service Vonage Holdings Corp., which is expected to go public later this month. A spokesman did not return calls seeking comment.

Although Vonage and Skype serve somewhat different markets -- with Vonage acting as a full replacement service for traditional phones over Internet lines, and Skype considered by most as a complement to existing service -- the free offer could siphon customers away from Vonage.

"In one stroke, Skype simplifies the choice to try Skype," said Phil Wolff, an editor at Skype Journal, an independent consulting group that publishes an online news site on Skype developments. "This promotion targets Skype's hardest market: North America."

The move puts pressure on rival Internet services such as Microsoft Corp., Yahoo Inc. (Nasdaq:YHOO - news), AOL, Earthlink and Google Inc., which charge small per-minute fees for computer-to-phone services, Wolff said.

Skype, which allows free Web-based calls between members, said the offer to U.S. and Canadian consumers is made feasible by the low cost structure of North American telecom markets relative to other countries, where phone tariffs are higher.

"The structure and efficiency of the telecommunications industry in the U.S. and Canada make it possible for Skype to offer free calls," Skype said on its Web site.

In October, eBay CEO Meg Whitman signaled that Skype users could eventually expect to make telephone calls for free, with no per-minute charges, as part of a package of services through which carriers make money on advertising or transaction fees.

"In the end, the price that anyone can provide for voice transmission on the 'Net will trend toward zero," she said.

The company is betting that by combining electronic markets, online payment systems and Web-based communications, eBay can emerge as a leader in all three businesses.

Gomez said the free phone service promotion will not alter the company's plans to generate more than $200 million in revenue during

2006, up from roughly $60 million last year. Skype will promote the offer via online advertising, radio spots and ads in selected local cable TV markets, he said.

Shares of eBay closed down 26 cents at $31.23 on Nasdaq.

Copyright 2006 Reuters Limited.

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