Internet phone service gets a Google twist

Internet phone service is the newest free Google app.

Internet phone service, Google style. The (mostly) free calling plan is built right into Gmail.

This week, Google wrapped its tentacles around yet another industry: Internet phone service. And, as with many of Google's projects, the new feature is well executed and free.

The scheme, popularized by Skype, lets people make calls through their computer for low or zero cost.

Google's 185 million Gmail users can download the software for free. Once installed, you can text or call any US or Canadian phone line at no cost. International calls are 2 cents a minute or 15 cents to foreign mobile phones.

While you might think Verizon and AT&T are quaking in their boots right now, some analysts think Google has a different target in mind. First off, phone companies have generally embraced Internet phone services: they do not threaten the convenience and mobility of cellphones; plus, Skype and now Google pay out millions of dollars a year for all of the calls that go over a carrier's network. (Google will pay off these carrier "termination fees" by keeping people in Gmail – and therefore staring at ads – for longer periods of time.)

"We assume Google's ulterior motive is less about disrupting the telecommunications industry (it will still pay termination fees to telcos) and more about driving engagement within Gmail and its social networking activities, to better compete with social networks such as Facebook," writes Goldman Sachs analyst James Mitchell in a note to investors.

Of course, Skype could also get walloped by this new service.

"Having it integrated into Google's Gmail and, assumedly, their other offerings down the road, is quite an extension for Google," Dan Olds, an analyst with The Gabriel Consulting Group, told Reuters. "Adding voice calls to their existing product set enhances the user experience and keeps people using Google apps longer and more frequently. It also keeps people from using another service like Skype, and it certainly may prompt some defections from Skype. Google definitely has the scale and reach to put a big dent in Skype if Google can deliver on the service side."

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