Big Players Enter VOIP Game

News Analysis: MSN, Yahoo and AOL, the originators of Internet telephony, are finally getting down to business.

Five years after pioneering Internet telephony in the United States, America Online, Yahoo and Microsofts MSN are finally taking the business seriously.

And that, said analysts interviewed Tuesday, could spell trouble for hordes of companies that subsequently introduced their own telephone services based on VOIP (voice over Internet Protocol), software that allows an Internet connection to double as an inexpensive home phone line.

On Tuesday, early VOIP pioneer America Online Inc. introduced TotalTalk, a very much revamped version of a VOIP service that AOL first introduced five years ago. Just how much more serious is AOL about the phone business now?

"This release increases our addressable market by a factor of 25," said Ragu Kamel, AOL senior vice president and general manager of voice services.

/zimages/3/28571.gifClick here to read more about AOLs release of IM and VOIP tools.

TotalTalk is part of a recent waive of renewed interest in inexpensive Internet telephony from AOL and its major competitors Microsoft Corp. and Yahoo Inc., which all introduced VOIP plans five years ago as part of a strategy to create a single Internet destination for any number of different applications, such as search, e-mail and instant messaging.

Google Inc., the worlds most popular search company, is often grouped into this lot, having introduced many of the very same types of different services.

Analysts have long held that by turning to VOIP, portals could ultimately shake up the phone industry. Yet each company has done little since to promote the services or improve them.

The relative inactivity until recently of the major companies has helped Internet telephony newcomers like Skype Technologies SA, a Luxembourg-based VOIP operator recently purchased by auction company eBay Inc.; Vonage, a subsidiary of Vonage Holdings Corp. of Edison, N.J.; and some major cable operators to steal the spotlight and garner millions of paying customers.

But now it appears that all are bracing for more serious battle for the phone business, having all in recent months significantly sharpened their telephone offerings.

/zimages/3/28571.gifRead more here about eBays VOIP strategy.

With customers reaching into the tens or hundreds of millions each, analysts have long held that portals pose a big threat to leaders of the traditional phone industry leaders Verizon Communications, BellSouth Corp., SBC Communications Inc. and Qwest Communications, known collectively as the Bells.

Yet, "the Bells arent scared, the smart ones are already in the VOIP business," said Andy Abramson, who writes the VOIP Watch Weblog. "MSN, Yahoo, AOL and to some extent Google are all following a me-too, me also strategy right now. We should see them start differentiating themselves in the coming months," he said.

Following AOLs TotalTalk, Microsoft made similar moves on Tuesday with its new partnership with local phone giant Qwest to sell phone services to SMBs (small and midsize businesses.)

In recent weeks, Yahoo unleashed a revamped version of its VOIP service, Yahoo Messenger with Voice, which provides new features and improves upon calling quality.

Search giant Google, considered a competitor to Yahoo, Microsofts MSN and AOL as it moves further away from its search roots and into new services, introduced its first version of Internet telephony a few weeks ago as well.

/zimages/3/28571.gif Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.