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Yahoo charges for Net phone calls

The Web portal says it will begin charging people for making phone calls through its instant-messenger service.

Web portal Yahoo said Monday that it will begin charging people for making phone calls through its instant-messenger service.

The phone charges come as the company unveils a new version of Yahoo Messenger, a free service that lets people exchange text messages in real time. Calls placed through Messenger now cost 2 cents a minute domestically. International calls, new to the service, will vary in cost depending on the country.

The changes stem from a revised deal with Internet telephone company Net2Phone at the beginning of the year. Yahoo introduced Internet phone calls in Messenger in October as a free service provided by Net2Phone. But in January, Net2Phone restructured its relationship with Yahoo, resulting in a $31 million charge for Net2Phone. The Internet phone company now sells wholesale minutes to the Web giant, according to Net2Phone spokeswoman Sarah Hofstetter.

The phone charges provide an example of how Yahoo has been experimenting with adding fee-based programs to its services. The company has faced mounting pressure from Wall Street and investors to find new ways to generate revenue as online advertising, its primary source of sales, continues to struggle.

Yahoo still ranks among the most highly visited sites on the Web, alongside destinations at AOL Time Warner and Microsoft. But the company has twice cut its revenue outlook for 2001 and has replaced its longtime chief executive, Tim Koogle, with former Warner Bros. head Terry Semel.

Instant messaging has become one of the most popular features on the Internet. Its popularity has also led to some of the most heated battles between giants.

AOL Time Warner owns the two most popular services: AOL Instant Messenger (AIM) and ICQ. But in 1999, Microsoft launched MSN Messenger and sparked a war of words when it allowed new customers to communicate with AIM members. A game of cat-and-mouse ensued as America Online blocked Microsoft and then Microsoft implemented new ways around AOL's barricades.

AOL's actions have since fueled regulatory action by its many instant-messaging competitors. Microsoft led a coalition of companies, including Yahoo and AT&T, to ask federal regulators to force AOL to open its IM network to rivals when approving its merger with Time Warner. Eventually, the Federal Communications Commission mandated that AOL open instant messaging only when it begins offering "advanced IM" services to distribute video and audio features.

Microsoft and Yahoo are rapidly picking up market share for instant messaging, according to a study conducted by Media Metrix in November. The study said the two companies' IM services grew at a faster rate than either AIM or ICQ.

Yahoo is not alone in scrapping free Internet calls on an instant messenger. Microsoft, one of the first to provide free calls via instant messaging, capped its offering at 5 free minutes in February. The software giant, which also has an agreement with Net2Phone, has attributed much of MSN Messenger's surging popularity to the free calls.

For Net2Phone, the new charges build upon the company's push to sell its phone services to consumer and business markets. The company has already begun selling Internet phone calling services to businesses as a way for companies to cut long distance phone costs.

Aside from the phone charges, the new version of Yahoo Messenger has added features such as an archive for text messages and the ability to create nicknames for friends using the service. The updated version also includes eight new smiley-face icons, such as a purple, horned devil and a taunting, bucktoothed idiot.

Yahoo Messenger's voice-chat feature will remain free.