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With a Rebtel Yell, Swedish Startup Raises $20 Million

I got a call this morning on my cell phone, which showed a local New York number with a 646 area code. But it wasn't a local call at all. On the other end was Hjalmar Winbladh, CEO of Swedish mobile VoIP startup Rebtel. His service, which launched this summer, assigns both you and a friend overseas a local number, and then connects both of you over the Internet. As he explains it:

You don’t have to download anything. It is compliant with 100 percent of mobile phones, except those that are broken.

The call was crystal clear. Rebtel's service, and business model, is quite clever. It is so clever that the company just raised $20 million from Danny Rimer at Index Ventures (who invested in Skype) and Benchmark Capital. Winbladh (who sold a previous startup, Sendit, to Microsoft for $150 million in 1999 and headed up its mobile business) explains the connection:

Skype is piggybacking on your investment in a PC and flat-fee Internet plan. We are piggybacking on your investment in a mobile phone and free local calls.

Most people's cell phone plans come with a virtually unlimited bucket of local calls (think about all of those free night and weekend minutes). But long distance charges for international calls are usually absurd. So what Rebtel does is it uses the existing cell phone system to allow people to use their local minutes, and then switches those calls over fat Internet pipes to overseas cities in 35 countries, where it is switched back to the local phone system. You can call as much as you want for $1 a week, and you only get charged for those weeks when you actually use the service.

As we were finishing up the call, I asked him how Rebtel was different from Jajah, which lets you enter two phone numbers in the Internet and then it calls both numbers locally to connect the two parties. Winbladh pooh-poohed his rival:

With Jajah you have to make two calls and pay both interconnection charges. It costs 20 cents per minute. We are turning that around and using your bucket plan. There is no cost associated with that. Jajah pretends a lot of calls are free, but they are subsidizing that with the VC money they got. It is not a long-term model.

Neither is charging for international calls, from the sounds of it. (If anyone from Jajah wants to respond, comments are open).

Update: Just to be clear about how Rebtel works, after initially setting up an account online, for every friend overseas that you want to call, the service assigns you a local number. Your friend gets assigned a second local number wherever he or she lives. So when you call, a local number appears on your friend's caller ID. The service was designed with cell phones in mind, with the idea that your freind can then save that number in their cell phone contact list under your name (and you can do the same for him or her). From then on, every time your friend calls that number, it gets rerouted to your cell phone, and vice versa. Your friend pays nothing, and you pay $1 a week for the service. You can also get assigned numbers for your friends directly to your mobile phone via text message.

The service is designed to spread virally. Each new friend you call is exposed to the service, and might be tempted to try it himself. And, unlike Skype, there is no need to download any software to try it.

But here's the catch: In order to avoid per-minute charges, both parties need to call into their assigned local numbers. This usually involves calling your friend and telling him or her to hang up and call back the number they see on their caller ID within 30 seconds. It's a bit of a hassle, and won't be for everybody.

The second drawback is that since you are assigned a local number, if you travel to another country, or the person you are calling happens to be traveling, the local-rate arbitrage won't work (i.e. the person traveling will have to dip into his or her national minutes or pay regular international roaming rates).

But if you have relatives abroad, say, or are traveling yourself and want to call back home from a specific city, it sure beats paying $1 a minute (or more) to Cingular.