SAN FRANCISCO (Reuters) - Deutsche Telekom AG said on Monday the company is backing Web telephone-calling start-up Jajah, embracing a technology that undercuts rates for the German telecommunication giant’s established long-distance and mobile phone businesses.
The deal marks the first time a major phone company has thrown its support behind the new generation of Internet calling services, which let consumers make telephone calls over the Web, bypassing conventional voice networks.
Jajah’s service allows consumers to make long-distance calls for the cost of a local call. Calls between any two registered Jajah users are free. Because such services are entirely software-based, Jajah can blend Web, computer and phone features in ways that conventional phones cannot do.
“This is the first time a major carrier is coming downstream to partner with a consumer Web-calling player,” Jajah Chief Executive Trevor Healy said in an interview.
Now Deutsche Telekom said it has begun embedding Jajah into its T-Online Web properties and that it expects to offer calling services to consumers and businesses in the future.
And T-Online Ventures, Telekom’s venture capital unit, disclosed it is part of a third round of funding for Jajah, a Silicon Valley start-up founded by two Austrians that delivers long-distance calls at a fraction of typical rates.
Deutsche Telekom is joining Intel Corp. in a $20 million investment round Intel disclosed earlier this month. Terms of the two companies’ stakes were not revealed.
Major phone carriers largely have shunned the emerging class of Voice over Internet Protocol (VOIP) start-ups, which pipe calls over the Internet rather than circuit-switched networks.
Skype, a unit of eBay Inc., pioneered the market four years ago and since then has signed up 200 million consumers worldwide for its service, which lets computer users call other users on their computer or Skype-friendly phones.
Jajah is one of a new class of rivals that let callers simply call phone-to-phone, once they have signed up on the Web. Other names in the field include Jangl, Jaxtr and Rebtel. Google Inc. is rumored to be eyeing the field, analysts say.
While each service takes a different approach to dialing around conventional phone networks, analysts say Jajah’s approach is the most friendly to entrenched telecoms carriers, in part because it allows people use their regular phones.
Rivals ask consumers to sign up for a new service and start using new phone numbers, undercutting the customer relationship that is so coveted by diversified telecoms operators.
Jajah has signed up more than 2 million users and expects well over 5 million users by year-end, Healy said. Germany is one of Jajah’s five biggest markets after the United States and Britain. Other top markets are China and India, he said.
Deutsche Telekom, which operates big fixed-line, mobile phone (T-Mobile) and broadband services (T-Online) in Europe and the United States, sees working with Jajah as a way to meet the threat of cannibalization to its existing businesses.
“The communication landscape is rapidly evolving,” Andreas Kindt, chairman of the investment committee of T-Online Venture Fund, said in a company statement.
“By investing in companies like Jajah, we will be able to continue to bring users around the world the innovative solutions they are looking for,” Kindt said, adding that Jajah figures in recent restructuring moves by Telekom.
Will Stofega, an analyst with IDC in Framingham, Massachusetts, said the deal breaks down the institutional walls that now separate conventional fixed-line and mobile phone services from Web-calling services.
“At the end of the day these upstarts aren’t going to go out and build new networks,” he said. “Meanwhile, the telcos need help from companies like Jajah on the innovation side.”
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