Adelaide-based ISP, Chariot Limited (ASX:CTI) and UK and US-based VoIP enterprise, Transcom International Limited, have formed a partnership to launch a low cost internet telephony system early in 2005.

The new VoIP system is claimed to enable low cost, internet-based international telephone calls, including free internet-to-internet calls, with Australia the first market for the system. The plan is to roll out the system shortly after the Australian release, to more than 60 international markets being targeted over the next five years.

The core of the system is based on a new proprietary VoIP system which employs software designed to route high quality broadband-based telephone calls throughout the world via the public Internet. Like the already available Skype service, the new system will handle telephony traffic by delivering any calls over the internet to other VoIP customers or to any point on the traditional PSTN as required.

The system will not require customers to buy a special IP telephone and promises to deliver significant cost savings on all calls – by up to 50% if fixed lines are involved, or if a VoIP to VoIP customer connection is being made, the call is free. In comparison, the Skype service also offers free VoIP to VoIP calls and charges 1.7c Euro cents a minute for VoIP to PSTN calls anywhere in the world.

"The system will inspire a paradigm shift in telephony habits," CTI's managing director, Robert Horlin-Smith, predicted.

"This habit change was reflected last month by Telstra, which acknowledged that fixed line telephone numbers in Australia dropped by 110,000 in the past year.

"Clearly, callers have commenced a permanent telephony migration to alternatives such as Internet telephony and mobiles," he said.

Under the terms of the agreement, CTI will pay $5 million to Transcom, for:

• An 80% shareholding in Transcom Australasia Pty Ltd, the system licensee for the region, and
• A 37.74% equity interest in Transcom Australasia's parent entity, Transcom International.

Transcom International will license the system and its associated technology in more than 60 countries.

CTI will purchase its interests in both entities through $3 million of bank debt, plus $2 million from CTI's working capital.

Benefits touted for the new VoIP system include:

• No need for a new telephone number or new telephone connection
• No computer required to make a call - a special VoIP box allows customers to piggyback their existing telephone service onto the new system and route calls through broadband Internet connections
• Completely transparent - just pick up and dial in the normal fashion
• A customer telephone number which is portable worldwide, subject to public Internet availability
• Reduction in domestic and international call costs, with savings of up to 50% against comparative conventional fixed line calls
• Unlimited "free" and "non-timed" calls to VoIP customers worldwide
• One bill for all services used worldwide, encompassing all customer usage of VoIP, PSTN, broadband and data products
• Reductions in PSTN line requirements for multi-line customers such as large businesses and government departments
• Automatic PSTN override for emergency 000 calls and 1300, 1800 and 1900 numbers
• Automatic default to the PSTN network in the event of a power loss.

The market was bullish on the CTI announcement, with CTI closing up 11c to finish on 96c in moderate trading.