Microsoft has developed a Skype-style free internet voice service for mobile phones that analysts believe could wipe billions off the market value of mobile operators.

The service is included in a mobile version of Microsoft Office Communicator due to b e released this year. It will take the form of a voice-over internet protocol (VoIP) application that allows Office users to make free voice calls over wi-fi enabled phones running Windows Mobile software. It uses the internet as a virtual phone network as well as accessing e-mail, PowerPoint and other Office applications.

Cyrus Mewawalla, an analyst at Westhall Capital, believes VoIP, when backed by Microsoft, will have a more devastating effect on mobile operators than it did on the fixed-line operators, which saw their voice revenues slashed after the introduction of VoIP services such as Skype.

"Internet voice does not even have to take market share to force traditional operators to cut their prices. The mere thought of free voice is enough to make customers push for price cuts."

However, O2 CEO Peter Erskine believes they will be able to fight off the threat from Microsoft’s entry into the mobile voice market.

"This is not the first time Microsoft has tried to enter the mobile market and they still have a very long way to go."

One question: With the ability to make free Wi-Fi calls, why bother with a cell phone plan?

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