Google's Call Service Slams VocalTec

NEW YORK (TheStreet) -- Google's(GOOG) free Gmail calling service is aimed to take Net calling giant Skype down a notch, but it's cheap dialing outfits like VocalTec(CALL) that are getting sunk.

VocalTec shares plunged 22% this week on news that Google had made free calling a no-brainer feature on its No.3 Web mail service.

This development is particularly bad news for VocalTec, which merged with YMax in July. YMax is the MagicJack shop known for its persistent TV commercials hawking a $39.99 device that includes calling charges.

VocalTec had its own plans for a free calling service called MagicTalk.

MagicJack founder Dan Borislow is the largest individual VocalTec shareholder with a 24% stake. Borislow previously ran Tel Save, later renamed Talk America, a low-cost long distance company that sold service to AOL users.

One low-cost Net calling service -- Vonage(VG) -- seems to be unaffected by the Google dialing plan. Vonage shares are largely unchanged this week at $2.06.

But the Google Gmail phone service could dampen the prospects for Skype's upcoming debut on Wall Street. Skype, which was purchased by investors for $1.9 billion from eBay last year, registered this month for an IPO that could net the company as much as $100 million.

Skype is the leader in the PC-to-Net-to-phone calling arena with some 8 million paying customers worldwide.

Judging by the tinny, delayed call quality of the Google Gmail phone, Skype may not have much to worry about right now. But if some of Google's estimated 100 million-plus Gmail users start opting for the service, Skype could face risks.

--Written by Scott Moritz in New York.

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