By Waliur Rahman
BBC correspondent in Dhaka
It is hoped to improve telephone communications to rural areas
The Bangladeshi government has approved plans to allow internet telephony in the county's private sector for the first time.
The system - known as voice over internet protocol or VoIP - is expected to enable millions of Bangladeshis to make cheap international calls.
Analysts have welcomed the approval as a landmark decision for a country that has one of the lowest telephone penetration figures in the world.
The approval for the commercial use of VoIP was given at the cabinet meeting chaired by the Prime Minister, Khaleda Zia.
VoIP is a combination of hardware and software that enables people to use the internet as the transmission medium for telephone calls.
For users who have internet access, internet telephony software essentially provides cheaper telephone calls to anywhere in the world.
The proposal opening up internet telephony was originally made by the regulators nearly two years ago.
But the government was apparently very reluctant, fearing losses of revenue for the state-run telephone company.
Approval finally came following strong lobbying and severe criticism from information technology and telecom experts.
For the past two years, they have been asking the government to allow internet telephony in the country to increase telecom reach.
To date, however, internet telephony does not offer the same quality as direct telephone connections.
The chairman of the Bangladesh Telecom Regulatory Commission, Syed Marghub Morshed, said they would soon call interested companies to participate in a bidding process.
"The licences will be awarded as early as possible as we should no longer hold back technological advancement," he told the BBC.
Industry leaders and analysts said government approval - although late - would help the technology expand even at the rural level where people are deprived from telephone facilities.
The president of Bangladesh ISP Association, Akhtaruzzaman Majnu, said internet providers will now find it viable to extend their business beyond large cities and towns to tap the demand in rural areas.
'Cheap international calls'
Akhtaruzzaman Majnu said: "We have five million Bangladeshis living abroad, mostly as workers in the Middle East and Malaysia.
"If we can offer cheap international calls, their families and friends will just grab the opportunity."
Mr Manju said once the internet telephony system is fully operational a telephone call to the United States will be 75% cheaper than what the government's telephone company is now charging.
Internet telephony, he said, is also expected to bring down the telecom expenses of export-oriented industries, and also help the call centre businesses to grow.