BT is gunning for rival voice over IP (VoIP) services such as Skype with BT Communicator with Yahoo Messenger, the UK telco's first major Internet telephony product.
BT Communicator integrates VoIP functionality into the Yahoo instant messenger client. It will provide free voice calls to other PCs, and will also allow users to call landlines and mobile phones for the same price as using their BT home telephone.
Andrew Burke, director of value added services at BT Retail, said that BT Communicator, which was launched on Thursday, would turn a home PC into the "smartest phone in the house".
The Communicator product is essentially a souped-up version of the latest Yahoo IM client. The call facility has been upgraded to allow phone calls beyond the Internet, and the address book now offers a link to the online version of BT Directory Inquiries.
According to Nick Hazell, Yahoo Europe's alliance director, this address book also offers better integration with Microsoft Outlook.
BT's entry into the VoIP market means it is now going head-to-head with the likes of Skype, whose peer-to-peer Internet telephony product has attracted plenty of attention.
BT's Burke claimed on Thursday that Skype was "nowhere close" to BT Communicator in terms of functionality.
"If you compare feature by feature, Skype has no video telephony, no address book lookup, no avatars or audibles," said Burke.
Skype was adamant that its prospects remain bright.
"Skype will continue to innovate to provide the best of breed Internet telephony to broadband users around the world," said a Skype spokeswoman.
"With SkypeOut, which offers PC calls to the public telephone network, launching soon and more user-requested features in development, we expect to continue to grow the 7.5 million beta users we've attracted in over 170 countries around the world," she added.
"SkypeOut will be offered at highly competitive rates and will effectively be global calling at competitive local call rates."
Burke, though, claims that SkypeOut will be poorer than Communicator because SkypeOut users will have to "scrape minutes" off a prepay account that will need topping up from a credit card, rather than paying through their standard phone bill.
One source close to Skype, though, was keen to dismiss the benefits of BT's integrated billing.
"We believe phone bills will be a thing of the past," said the source, who said that Skype, like BT's Communicator, has avatar options via its 'my picture' feature, an address lookup through its user-propagated Global Directory, and a network-based address book feature throughout the Skype global directory. And, just like BT, Skype is working on video telephony.