Microsoft has announced the acquisition of privately held internet telephony outfit Teleo in a deal that positions the software giant against Skype in the already crowded VoIP market. Financial terms of the deal were not disclosed.

Redmond plans to use Teleo's technology to allow users to make phone calls from PCs to traditional phones and mobiles as well as other broadband-connected PC users. The service will be integrated with Microsoft Outlook and Internet Explorer to facilitate what Microsoft describes as "click-to-call dialing" of any telephone number that appears on-screen. The software will also be used to supplement existing VoIP features in MSN Messenger. San Francisco-based Teleo was founded two years ago and recently launched a beta service, which was pulled once the firm fell into Redmond's orbit.

Microsoft's purchase of Teleo follows last week's launch of Google Talk and earlier launches of similar services from Yahoo! and AOL that allows users to chat over the net using their existing broadband connection. Teleo's technology extends beyond that to allow calls to landlines so Microsoft has actually bought itself a Skype-like service. Microsoft's pricing and product delivery plans for the service remain unclear. ®