(FORTUNE Magazine) – No one told Mike McCue that the bloom was off Internet startups, especially the sort that act as if they can change the world. Nor does he seem to have gotten the message that it's time to batten down, think small, and get profitable--now. Instead, McCue, the ever enthusiastic CEO and founder of Tellme Networks, is still thinking, and talking, big. "We're going to change the way people use the telephone" is one of his modest pronouncements. "Our long-term goal is to create dial tone 2.0" is another.

As grandiose as such claims might sound, he just may succeed. McCue is betting that the marriage of voice-recognition technology, mobile telephony, and the Internet will ignite some of the most far-reaching changes in the 125-year history of the telephone. As he sees it, more and more people will want to tap into their e-mail, buy things online, and mine the Net for information while they're on the go. Typing at a keyboard would be a wholly inadequate way for them to let the Net know what they want to do. McCue's goal is to let them surf by talking on the phone.

Turning that ambition into a business is no easy matter, and some of the other companies pursuing the new market, like America Online, are much larger than Tellme. Plenty of earlier technologies, especially ones spun off by the Internet, looked like sure-fire winners, only to fizzle. Just a year ago everyone was touting Webcasting as the next sure thing. And remember push technology? You can be forgiven if you don't.

Like any good entrepreneur, though, McCue expresses few doubts in himself or his ideas, and is charging ahead. Tellme has a two-pronged plan for rolling out next-generation telephony. The company is creating an Internet portal along the lines of Yahoo, with one key difference--you can talk to the portal to get your information. The idea is that the best interface to the Internet from the growing arsenal of mobile phones is your own voice, not a tiny keypad and screen. Voice-recognition technology, along with software that converts text to speech, lets people do much of what they want to on the Net by speaking into the phone and listening to the response. You can get stock quotes and driving directions, send and receive e-mail, even buy a book on the Web--all with oral commands.

McCue's plan is to bundle as many basic services as he can into the Tellme voice portal. Instead of tapping into the services from a keyboard, as you would on Yahoo's Website and America Online, users reach Tellme by calling a toll-free phone number. Like conventional Web portals, Tellme will get its revenue from advertising and sponsorships--users must listen to very brief announcements of an advertiser's name--and from a share of e-commerce transactions. The company will also make money by building and hosting voice-enabled applications for other companies.

Creating an Internet voice portal is just the first part of McCue's strategy. He also wants Tellme to change the way people make phone calls. If he gets his wish--and it's a big one--Tellme's toll-free number would be the last one you'll ever need to dial. Directory assistance, personal phone directories, automated dialing, and the yellow pages--all will be offered via voice recognition on Tellme. Need to reach a local tailor? Just say "Find the nearest tailor and connect me." Want to call your mother? Just say "Call my mother." And if you're ready to head out of town, fast, you can book a ticket by saying "Call United Airlines reservations."

McCue hopes that eventually you won't even need to dial Tellme. Instead of getting a dial tone when you pick up the phone, you'd be connected directly to your personal Tellme virtual assistant, ready to help you call your boyfriend or sell a stock. That's what McCue means by "dial tone 2.0." Tellme now offers free two-minute calls anywhere in the U.S. But there's no reason Tellme couldn't one day charge for longer phone calls, or support free phone calls by making callers listen to brief ads. If that comes to pass, says analyst Mark Plakias of the Kelsey Group, a Princeton, N.J., research firm, Tellme or a company like it could become the next-generation telephone company.

Whether or not it wins that prize, Tellme has caught the attention of bigger players. As selling regular dial tone becomes more and more of a commodity business, companies like AT&T are looking for new services to generate revenue and attract customers. That's why AT&T invested $60 million in Tellme. AT&T has also licensed its own voice-recognition technology to Boston-based SpeechWorks International--one of the two principal Internet speech-recognition software companies--in return for an equity stake in the company. "I think over time these new services will change the phone business," says David Nagel, chief technology officer at AT&T and president of AT&T Labs. "Why not have a personal assistant say, 'How can I help you, Dave?'"

More telephone companies are likely to follow suit, partnering with one of the voice-portal startups to develop services for their customers. Amol Joshi, co-founder and vice president of marketing at voice portal BeVocal, pledges that his company will announce a partnership with at least one big telco later this year. Other phone companies, like BellSouth, are developing voice portals of their own. Not surprisingly, Web portals are trying out for a speaking part in this play too, by trading on their Internet expertise, partnerships, and large customer base. America Online has been the most aggressive, investing in SpeechWorks, buying the startup voice portal Quack.com, and launching a phone portal in October. AOL Interactive Properties President Ted Leonsis says, "Our goal is to make it as easy as possible for people to connect to AOL." Only AOL subscribers will be able to use the portal--initially at no extra charge, but for $4.95 a month starting in February. Also launching in October was Yahoo's phone portal, which anyone can use free. For now it will accept only input from a touch-tone keypad; soon it will use voice recognition.

While the big-company imprimatur is encouraging, voice portals are still in their infancy. They lack many of the features that surfers have come to expect from Websites like Yahoo, and are far from supplanting the phone companies when it comes to offering phone service. In fact, today's voice portals sometimes seem like gimmicks. Even Gary Prophitt, president of BellSouth's IntelliVentures, which oversees the company's two voice portals, calls them "soaps and scopes." That's short for soap-opera updates and horoscopes, two of the more popular features available on most voice portals. Astrology buffs may well like to phone in, give their sign, and hear "Hello, Pisces. It's a seven out of ten day," but that is hardly the sort of thing that will rock the world. Few of the sites are tailored to the preferences of individual users, instead serving up generic services that can be fun to play with but not essential to anyone's life.

That is beginning to change, with truly useful features like personal calendars and address books arriving at an ever faster clip. SpeechWorks, for example, is helping Palm enhance its AnyDay Web calendar service so that the three million Palm users can access their calendars by dialing a number and talking. At first, voice users will only be able to retrieve information entered earlier by keyboard in their personal calendar, address book, and task manager. Future versions will let AnyDay users make changes to them simply by talking. The service will be handy for a salesperson stuck in traffic or waiting in line at the airport.

What will really make voice portals stick with consumers, though, are services that are more convenient than the ones readily available on the Web. BeVocal of Santa Clara, Calif., lets a user phone in and ask for, say, the nearest bookstore, get step-by-step driving directions, and connect to the business by phone--all with one call. You could find all of that information on the Web but not without a lot of surfing.

Voice portals can bring the same sort of ease to e-commerce. New authentication technology that identifies people by their voice prints will make transactions safer and simpler. Voice surfers will be able to order books from Amazon, groceries from Webvan, and supplies from dentalsupply.com, all without having to talk to a live person. When they first set up an account, users will store their credit card information, address, and other personal data on the voice portal under secure conditions. If they find something they like, they need only say "buy it" without having to remember their card number or worry about an eavesdropper stealing it. Home Shopping Network already has 700,000 customers who have registered to buy products using voice-authentication technology, according to Ronald Croen, CEO of Nuance Communications of Menlo Park, Calif., which supplied the software.

Voice portals not only have to be easy to use but must be simple for companies to create too. Until recently that wasn't the case. Older voice-recognition services--like the one that lets Charles Schwab customers get stock quotes and buy and sell stocks using voice commands--had to be custom-made. Today, packaged software programs from the likes of Nuance and SpeechWorks do much of the work. As Netscape does for the Web proper, those two companies provide the software underpinning of the voice Internet, from voice browsers to programming tools.

The portal companies still have to do a fair bit of heavy lifting to make a voice browser work like a Web browser. Take stock quotes. Like Yahoo on the Web, Tellme gets data feeds from an outside company, such as Reuters. On Yahoo the user asks for a quote by typing in a stock symbol or using a search tool to find it. Tellme, on the other hand, must make sure its voice software can recognize the name of every company trading on the major stock exchanges and translate it into a stock symbol. Whenever Nasdaq lists a new company, Tellme updates its software.

Portal companies must also play tricks to get around the limits of the underlying technology. Software that converts text into speech is still fairly primitive. Too often a computer-synthesized voice will sound like a robot on drugs. As a kludgy fix, Tellme has recorded millions of snippets of actual human speech, which it stores and plays back instead. Tellme is going so far as to record the name of every movie theater, restaurant, and street name in the country. While that might make sense for names that come up a lot, it's impractical to list every business in the world.

The science of voice recognition, on the other hand, is finally beginning to mature. "Speech-recognition technology has improved by a factor of 250 or so in the last five years," says AT&T's Nagel. It wasn't too long ago that systems had to be trained to recognize an individual's voice. Now they can comprehend basic commands whether someone speaks with a deep Southern drawl or in the clipped cadences of New England. Vocabularies are still limited, though, so work continues.

However easy they are to use, voice portals won't have much to offer if they can't find data to mine. A new programming standard called Voice XML is letting content companies encode information on their Websites so that a voice browser can recognize and retrieve it. VXML is a little like the bar code used on packaged goods to describe the manufacturer of an item, its price, and what the item is. A listing for a Chinese restaurant, say, would be tagged with the same code on every Website.

With the help of such advances, voice portals are expected to have 45 million users by the end of 2005, up from about two million at the end of this year, according to the Kelsey Group. Numbers like that are helping portal companies pull in cash from investors. Tellme has raised the biggest war chest--about $238 million, $125 million of it in the last month. McCue has attracted a blue-chip lineup of backers, including Kleiner Perkins Caufield & Byers, Benchmark Capital, and the Barksdale Group, along with AT&T. He's likely to need all that money and more to reach his ambitious goal.

For those who don't want to wait for portals to take off, there's always the old-fashioned approach--hire a human to troll the Net for you. For $21.95 a month, iNetNow of Los Angeles gives subscribers unlimited access to a real live personal assistant over a toll-free phone number. The assistant will do anything that can be done on the Web--buy your wife flowers (using your credit card, of course), order a book on Amazon, check the latest baseball score, or find out how tall Sean Connery is (to settle one of those bar bets). Voice portals still have a way to go before they can offer that sort of personal service.

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