The new service, which Priceline said could save consumers up to 40 percent on their monthly long-distance charges, is the latest of several name-your-price offerings available on Priceline's Web site, ranging from groceries to mortgages to airline tickets.
To use the long-distance service, customers will enter the per-minute price they are willing to pay for a block of minutes. Priceline will then try to match the offer with a phone company that agrees to sell the minutes for that price.
Once a buyer and seller have been matched, Priceline will send an email to the customer with the name of the provider. To place a phone call, the customer dials an access number and a four-digit personal identification number, followed by the phone number. Participants don't need to switch long-distance providers or pay a monthly fee.
Three companies have agreed to sell long-distance access through Priceline: Net2Phone, Deltathree.com and ZeroPlus.com. All three are considered IP telephony companies because they route calls over the Internet using Internet Protocol. However, the calls are placed from one phone to another, not via a PC.
In tests earlier this year with Net2Phone, Priceline said customers saved up to 40 percent "off most standard base rates."
"It's kind of a win-win situation" for customers and telephone companies, said Greg Konezy, a senior analyst at U.S. Bancorp Piper Jaffray who covers Priceline.
"Once the telecom companies have built their network, the marginal cost of adding a customer is very low," said Konezy. He rates Priceline a "strong buy." "The telecom companies have inventory that's just sitting there waiting to be used."
For the phone companies, "this is a way to acquire customers through Priceline very effectively as opposed to going the brand building route," which would cost a lot more money, he added.
Konezy said Priceline benefits by adding a service that expands the company's product line, which could translate into attracting more customers.
Priceline also announced today a marketing partnership with American Express to develop a Web portal that will sell services to small businesses.
As part of the deal, American Express will market the portal to its more than 2 million small business customers and offer a 5 percent discount on purchases. Priceline will reciprocate by featuring American Express as the preferred method of payment.
Priceline's stock fell $4 today to close at $36, well below its 52-week high of $158.87. At one point during the day the shares dipped to $33.06, a 52-week low.
Last month, the company reported revenues of $313.8 million for the first quarter of 2000, a 535 percent increase over revenues of $49.4 million in the first quarter of 1999 and an 85 percent increase over revenues of $169.2 million in the fourth quarter of 1999.
Earlier this month, Priceline launched a service to sell gas. But several large oil companies, including ExxonMobil, Chevron and Venezuela's Citgo, refused to participate, casting doubt on whether Priceline would be able to save drivers much money.
News.com's Sam Ames contributed to this report.