PhoneFree Undergoes Makeover; CEO Out

With the online advertising market in the dumps, New York-based Inc. has abandoned the Internet telephony space.

In a dramatic move, the company, which built a brand by burning telephone bills on TV, will no longer be offering PC-to-PC and PC-to-phone calls from its Web site.

The five-year-old PhoneFree has changed its name to Gemini Voice Solutions and a new chief executive has been named to push commercial broadband voice application services.

PhoneFree CEO Jan Horsfall has been replaced by former Cisco and IBM executive Charan Khurana and approximately 60 percent of the company’s 80 employees have been laid off in the restructuring.

Horsfall, the former Lycos marketing executive who took charge of the company in 1999, said the decision to completely change the business model was inevitable.

“The Internet telephony model was not cutting it. We tried everything but we simply could not subsidize the costs, given the weakness in the media market,” Horsfall said in an interview with atNewYork.

“I’m smart enough to realize my limitations and, at this time, it’s right to bring in a new CEO who has the experience to lead the company in a totally new direction.”

PhoneFree had started charging a flat fee of 2 cents per minute for PC-to-phone calls throughout the U.S but Horsfall said the move did not work out. “We lost about 85 percent of our user base so we’re going to phase that out. I’d say we’re about 60-90 days away from discontinuing it altogether.”

The company, which dialed up $42 million in a round of funding last year from Blackstone Capital Partners and eVentures Group, still has enough capital to last through 2002, Horsfall said.

Now, the focus is on rebranding as Gemini Voice Solutions to become a Voice Application Service Provider (VASP) targeting cable operators and DSL providers nationwide.

The company’s new technology basically provides high-speed Internet Service Providers with a hardware add-on device to market to consumers.

The “Gemini Gateway” device can be attached to cable and DSL modems and then connected to a user’s telephone to offer carrier class and long distance voice services.

Horsfall, who now serves as vice-chairman of the board of directors, said the challenge now is to land deals with the big-name cable companies and DSL providers.

“This is a huge market and we have some tech trials in place. We’re getting good traction on that and if we can get one trial to go right with a major cable provider, we’re home free.”

“This product is ready for prime time. It’s a matter of being aggressive on the business side and hopefully gaining a full-blown rollout.”

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