DSG informed its VoIP customers by email that it was closing the service and switching them to rival firm Vonage, although the Freetalk website is still offering the service.
Dixons launched Freetalk in September 2005, pointing to the seven million users in the UK broadband market as an indicator of the potential market.
Simon Turner, group managing director at DSG, said originally that internet telephony services were now stable and "easy enough to launch to the average home user".
However, the company has now admitted that the market had not lived up to its expectations.
"The VoIP market in the UK has been slower to take off than we envisaged. We still believe VoIP is coming, but it is going to come more slowly," DSG International chief executive John Clare told The Telegraph.
The Freetalk service required an adapter to make the VoIP connection using a customer's normal handset, without needing a PC.
Freetalk's closure comes hot on the heels of the launch of DSG's £50m technical support service.
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