Internet phone rates rising

By Tom Spring, PC World |  Networking

Attention cheapskates: A free phone call over the Internet isn't going to be available
this Mother's Day.

Yahoo Inc. has begun charging two cents per minute to place a telephone call
over the Internet using its Yahoo Messenger instant messaging software.

On Monday, Yahoo also began charging $0.02 per minute for domestic calls routed
over Net2Phone Inc.'s voice-over-Internet protocol network. Yahoo still allows
free PC-to-PC voice links, and international calls will vary in cost.

Yahoo is only the latest firm to hang up on free PC-to-telephone calling. And,
as the toll road version of the Infobahn gets paved, more fees are looming.

Raise rates or die

Recent years have seen a bevy of start-ups challenging traditional telephone
companies with free PC-to-phone services. But as the dot-com sector tanked and
free Internet services vanished along with the online ad dollars that supported
them, free PC-to-telephone schemes are hurting. FireTalk, ThinLink, and VisiTalk
have all shuttered, according to Mark Winther, an analyst with market research
firm IDC.

"There is no business model in free," Winther says. Companies either
had to start charging or go out of business, he says.

Last week, Microsoft began charging two cents per minute for domestic calls
placed over the Internet using its MSN Messenger. Meanwhile, America Online
has always charged one cent per minute for placing telephone calls over the
Internet. In January, PhoneFree began charging customers, citing slow ad sales.

Popularity multiplied costs

Ironically, the popularity of Internet Protocol telephony services is partly
to blame for the price hike, according to representatives from Net2Phone, which
provides the service to AOL, Microsoft, and Yahoo.

Net2Phone says Microsoft and Yahoo customers swamped its network when both
introduced the services free of charge. That drove Net2Phone's costs higher
than expected. Eventually, Net2Phone was forced to renegotiate its business
relationship with Yahoo and raise its rates for the service. Yahoo and Microsoft
passed the cost on to consumers, says Sarah Hofstetter, Net2Phone spokesperson.

"We'll probably lose a lot of customers," Hofstetter says. "But
they weren't the right customers to begin with." She says Net2Phone has
experienced 25 to 40 percent quarterly growth of paying customers over the past
four years.

Net2Phone still provides free domestic calls in the United States or Canada
for a five-minute limit before the calls are disconnected. People can immediately
redial and make another free, five-minute call.

Holdouts in a popular industry

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