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By David Meyer, 7 September 2006 16:50

NEWS

The Dixons group is shutting down its year-old Freetalk voice over IP service and transferring the customers to former rival Vonage.

Citing incompatibility with the changing face of the Dixons brand - Dixons Stores Group (DSG) recently rebranded its high-street retail stores as Currys.digital - the company insisted it had not given up on the technology.

A DSG spokesman said on Thursday: "We've reached a commercial agreement with Vonage to transfer existing Freetalk customers and will be promoting Vonage as a VoIP service through our UK stores."

He added: "We still believe that VoIP telephony is an exciting and growing market but our role in the market is as a specialist retailer of products as opposed to providing telephony solutions."

The spokesman said the market for VoIP was "going to build over the medium to long term" and suggested some consolidation would be "inevitable" over the next few years.

Mark Main, a senior broadband analyst with Ovum, agreed DSG's move could represent the start of consolidation in the VoIP market. However, Main also suggested it could also be a result of the group "giving up on VoIP, realising the margins aren't actually there unless you can achieve efficient scale pretty quickly".

Main said: "They may have joined the bandwagon with other people and realised the ride would be bumpier than they thought."

Main also said retailers had found it difficult to succeed in the VoIP market because of the competition from bundled services from players such as BT and Orange. "Trying to sell a standalone VoIP package is pretty difficult and that's the challenge of the retail players - I don't think they've done enough to make customers aware of the potential benefits of VoIP," he said.

He added: "In terms of retail presence it's a good thing for Vonage."

Kerry Ritz, the managing director of Vonage UK, said on Thursday that the agreement "further demonstrates the strength of the Vonage proposition and brand and we are thrilled to have the Vonage service available at the UK's largest electrical retailer".

Vonage refused to say how many customers were migrating, though the number is thought to be in the tens of thousands.

The Freetalk service was based on adapters which users could pick up in their local Currys or Dixons store and install themselves. Those who choose to migrate to Vonage will need a new adapter but Vonage will supply this free of charge while also waiving its usual connection fee.

In terms of monthly charges, switching customers who had been on the highest Freetalk tariff will get their first month with Vonage free, after which Vonage will charge its usual rate but refund the £1 difference - Vonage charges slightly more than Freetalk did - until the original Freetalk contract period ends.

Vonage has had a variety of difficulties recently, notably a flotation on the stock market that resulted in the company being sued by its investors, and several patent suits.

David Meyer writes for ZDNet UK