Dial the world for 17 pence

BRITISH Telecom is concerned about the launch tomorrow of a software product that will allow people to make phone calls to anywhere in the world for the price of a local call.

People connected to the Internet can use the software, costing $69, to send and transmit voice messages internationally. The only cost is the local call on to the Internet.

The product, Internet Phone, has been developed by a tiny Israeli technology company, Vocaltec, which has also signed a strategic deal with a US company that offers Internet connectivity to challenge US long-distance providers such as AT&T, MCI and Sprint.

BT admits that the product could soon cut into its revenues from international calls. Last year it made profits of about pounds 2bn from international calls. "It probably won't affect us in the short term, but in five years or so there will be an impact," said a BT spokesman.

The savings from using the system can be large: at peak rates, a five- minute call from Britain to Japan costs pounds 4.37. Over the Internet, it would cost 17p. "With this product, we become a threat to the phone companies," says Elon Ganor, Vocaltec president.

Vocaltec last week tied up a deal in which the US Internet provider Netcom will provide the software free to its 110,000 subscribers across the US. It is understood to be close to a similar deal with UK-based Demon Internet, which has 32,000 subscribers.

BT is powerless to prevent Internet Phone being sold and used by British companies because they are not setting themselves up as telecoms companies, but simply using the data capacity of the Internet. "There are no regulatory issues at the moment," said BT's spokesman. Oftel and the DTI would not comment, except to say they were "aware" of the product.

Vocaltec's package requires a standard PC equipped with a card to translate sounds into computer digits, a microphone and speakers. Systems like this typically cost about pounds 1,000. The other requirement is a high-speed modem, costing about pounds 100, which connects the computer to the phone network. It works by digitising the user's speech, compressing it into a data "packet" and sending it over a local phone line to another computer connected to the Internet. From there, it can be passed around the world to another computer, where the packet of data is turned back into speech and played through the speakers.

There are limitations to the software's efficiency: if the data networks used by the Internet are congested, the response will be slow. But as the use of the Internet grows, more and more capacity is being dedicated to it, especially on transatlantic links. It will also only work if the person receiving the call is already connected to the Internet.

In February, Vocaltec released a limited version of the product in which only one person could talk at a time. Within three months it had attracted 120,000 people to its site on the Internet's World Wide Web (For aficionados the address is: http://www.vocaltec.com). There they could download a free copy of the program, which worked for 90 seconds.

The popularity of the system has been so great that companies offering Internet links have had to ask people not to use it at peak times.