Microsoft plans pre-paid PC-to-phone service

Microsoft joined the rush to offer Internet-based telephony services announcing a cut price pre-paid PC-to-phone service in conjunction with MCI, the US telecommunications group that is being acquired by Verizon Communications.

The service, which combines MCI’s existing VoIP network service with Microsoft’s software, is expected to launch in the first half of 2006 and will be called MCI Web Calling for Windows Live Call.

Users will access it the new service through Windows Live Messenger - the upcoming successor to the MSN Messenger instant messaging service which has more than 185m active users around the world and competes directly with AOL and Yahoo’s IM services.

Microsoft’s move follows similar initiatives from Google, Yahoo! and eBay’s Skype unit which have all announced low price PC-to-phone VoIP (Voice over Internet Protocol) services in recent months. However Microsoft’s decision to develop its service in conjunction with an existing telecommunications operator gives it’s a powerful ally.

Customers signing up for the Microsoft/MCI service will initially pay 2.3 cents per minute for calls within the US and between the US and other countries.

That compares with Yahoo which is also expected to be tied to its IM service and is expected to charge 1 cent per minute to call a phone in the United States from a PC outside the country. Calls to about 30 other countries would cost about 2 cents per minute with the Yahoo service.

Skype, the leader in the free PC-to-PC VoIP market, currently offers calls for about 2 cents a minute from a PC to a phone in the US other countries.

Like eBay’s SkypeOut service, customers for the Microsoft/MCI service would purchase prepaid calling cards and will be able to make calls to ordinary fixed line an mobile phones just by clicking on an entry in their contact list. Microsoft and MCI are currently testing the service as part of a limited beta program in the US which is expected to be extended to France, Germany, Spain, and the United Kingdom shortly.

Final pricing will be determined when the product officially launches. Eventually Microsoft and MCI said users will be able to call more than 220 countries.