A UK startup has said that it will offer cheaper long-distance calls to UK consumers by using Internet technology. The service will be available from midnight Friday. Callserve is billing itself as the first European Internet telephony provider, claiming that it will offer long-distance telephone calls up to 60 percent cheaper than BT. To take advantage of the service, users download the client software from Callserve's Web site. Calls are then routed via the company's H323 gateways to connect to the telephone network switches. Billing is handled on a prepay basis, with a customer's account being debited for each call made. Paul Duffy Callserve MD, said that although latency problems exist with the service, "the quality is comparable to what you get with a mobile phone, and as we add more gateways we will have more control over the latency. We are set on an active programme of improvement." There's also the disadvantage that callers will have to go through their PCs to use Callserve, using speakers or headphones and a microphone -- a far cry from the convenience of the standard telephone. Despite the awkward setup, the price savings over BT are impressive. Callserve will charge three pence a minute to the US, compared to BT's 20 pence, and seven pence a minute to Australia compared to BT's 42 pence. "I believe that BT will be watching us closely," said Duffy. "It makes a large proportion of its profits from its quarterly line rental charges, and charges five pence even if you are connected for less than three seconds. All we charge for is the time that you are talking." But analysts were doubtful of the threat that this would cause to BT, and its viability as an alternative service. "Will this keep Peter Bonfield awake at nights?" said Dean Bubley, director of Datamonitor's technology practice. Bubley also expressed doubts as to the line quality. "There have been 101 ways of doing this in the last few years and it really is a very niche market. Making calls over the public Internet means that you are relying on multiple service providers and are guaranteed no quality of service," he said. According to Bubley, telephony over the Internet will only find favour with consumers who would otherwise not be making long distance phone calls at all. "This technology may open up new markets, such as students, but it will be incremental rather than substitution," he said. Callserve aims to drive the service forward by entering into bundling and marketing deals with ISPs and modem manufacturers. Also see Guy Kewney's commentary on Callserve.