Internet set to cut phone bills

A controversial new telephone system, which carries long- distance signals across the Internet, will cut the cost of international phone calls to national levels, says the company which has launched the service.

International Discount Telecommunications (IDT) said that its pioneering transatlantic service, costing about 8p a minute, will be available in Britain by January, and a limited service will be available in 80 countries "in the coming months".

To access the service, customers will need an Internet connection, which costs around pounds 12 a month, and a personal computer with modem, microphone and speaker. Unlike other Internet voice services, where the service is limited to computer-to-computer communication, IDT's system allows for calls to regular telephones. The president of IDT, Howard Jonas, said: "Our system will bring international calling within the range of regular people."

The implications for users, and for the major phone companies, are far- reaching. British Telecom, which makes pounds 2bn a year from international calls, stands to lose custom from the one million British people with Internet access, a significant number of whom are business users. Neil Ellul, editor of Internet magazine, said: "The whole basis of the Internet is cheap and reliable communication. BT have had it too good for too long." But BT said they had no objections to the IDT system, "as long as they abide by the same regulations as us".

The Telecommunications watchdog OFTEL confirmed that the service "seemed legal", but added: "We are watching it closely." Any restrictive legislation would take at least six months.

IDT, whose undercutting "callback" phone services have irritated telephone companies and governments worldwide, claims its new service will revolutionise long-distance calls. However, a question mark hangs over the legal status of the service, as well as the amenability of companies which provide access to the Internet. Internet-provider companies are ambivalent about voice communications over the Internet as they take up large amounts of bandwidth, slowing down connections for other users. A major Internet provider, Unipalm Pipex, has already banned end-user companies from carrying real-time voice data.

Traditionally the Internet has grown to accommodate its users' needs and many believe that new technology will keep up with demands made on it.