Microsoft snaps up internet telephony group

The deal is designed to integrate Teleo software into Microsoft's range of applications including its MSN Messenger, Internet Explorer and Outlook e-mail functions.

Teleo software allows users of personal computers to place calls from their PCs to telephones. So-called "click and call" technology is expected to take off rapidly in the next couple of years as broadband connections become common. Callers using PCs to place a call usually use a headset connected to their PC to talk to the person receiving a call.

Teleo was founded in 2003 by Peter Sisson, who founded Wineshopper.com during the internet boom. Microsoft refused yesterday to say how much it was paying for Teleo.

Microsoft has seen rivals such as Google and Vonage make headway recently in the market for internet-based telephony, offering free calls between subscribers and cheap calls to other networks. On its website, Teleo advertises calls at two cents a minute to most standard numbers. A call from the US to the UK using a Teleo connection costs two cents a minute to a landline and 27 cents a minute to a UK mobile.

Microsoft intends to make its new internet telephony offering available to UK customers once it is ready to roll it out this year. It will be integrated into its Outlook service, for instance, allowing recipients of an e-mail to reply by clicking on the address and placing a call rather than sending back another e-mail.

People using Microsoft's internet-search facility will be able to place calls to telephone numbers that appear on the search results by simply clicking their mouse instead of picking up a phone and dialling.

PC-to-PC connections have the disadvantage of allowing people to call another person only when they know they are logged on to the internet. PC-to-phone dialling allows a caller to call any telephone number. Companies such as Vonage have also pioneered phone-to-phone calling using a broadband internet connection which does not need a PC but involves plugging an adaptor into a broadband wall socket to make calls over the internet.

Will Collins, the product manager for Microsoft's MSN service, said: "Teleo has a number of technology solutions that are exciting to us. Their innovative data offering allows calls to phones and PCs but it's integrating that with Outlook and Internet Explorer with a click-and-call function which is what's interesting to us."