Microsoft buys Internet phone company

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Telco purchase will allow computer-to-regular-phone calling and the ability to compete with Skype.

Microsoft moved to build its presence in the booming Internet telephone market Wednesday, purchasing Teleo Inc., a California company that lets users make calls from their computers to regular phones.
The Internet telephone market is heating up. Leading search firm Google launched an instant message and voice chat service earlier this month to compete against AOL , Yahoo, Microsoft and Skype.
Globally, Skype is the current market leader in Internet telephone service, also called Voice over Internet Protocol, or VoIP. It has 51 million registered users and more than 2 million customers who pay for services like voicemail and connections with outside phone numbers.
Google (Research), Microsoft (down $0.01 to $27.17, Research), AOL and Yahoo (Research) all offer voice calls between computers, but not to outside phone lines.
AOL is division of Time Warner (Research), CNN/Money's parent company.
Yahoo purchased an Internet telephone company called Dialpad earlier this summer, with plans to offer inbound and outbound phone call capabilities that are similar to Teleo's.
Analysts who follow VoIP have long predicted that Microsoft might buy Teleo, in part because Teleo's service is closely integrated with Microsoft products like Outlook and Internet Explorer.
Will Collins, global messenger product manager at Microsoft, said the company hoped to integrate Teleo's offerings into its products by the end of 2005. Microsoft may add "click-to-call" features to Outlook or Internet Explorer, so that users can automatically call a phone number by clicking on it, he said.
San Francisco-based Teleo also offers options to forward VoIP phone calls to a mobile phone or office number, or voicemail that can be emailed to the user. Outbound calls from a computer to a phone number cost $0.02 per minute. Terms of its deal with Microsoft were not disclosed.
Earlier this year, Skype Chief Executive Niklas Zennstrom spoke at a Reuters Telecoms, Media and Technology Summit and said his company had to build its user base as quickly as possible because much larger rivals were certain to enter the market.
"The biggest threat are the portals such as Yahoo and MSN," he said.
Teleo, Google and Skype all use voice-processing software from a Norwegian company called Global IP Sound.