[DMCA-Activists] Skype: Free Internet Telephony

[Seth Johnson]

(Forwarded from Pho list.  Liberated by the Minnesota decision, here it
comes.  -- Seth)

-------- Original Message --------
Subject: pho: NYT: A Giant Meteor Hurtling on a Collision Course Toward
Earth
   Date: Sun, 12 Oct 2003 13:27:49 -0400
  From: Kevin Doran <address@hidden>
    To: address@hidden


Skype and VOIP (but no SIP) telecom impact.  Mostly a heads up to
stockholders.  Includes the news that Skype users will be enabled to dial up
non-Internet handsets/cells sometime next year.

Got that?

Skype will be the killer app that drives the shift to WiFi deployment and
adoption.  Whether the telcos are ready for _that_  event determines if this
signals their disintermediation or rebirth.

k

.
http://www.nytimes.com/2003/10/12/business/yourmoney/12kaza.html?pagewanted=print&position=


To Whom May I Direct Your Free Call?

By NICHOLAS THOMPSON
October 12, 2003


IN the fall of 2000, Niklas Zennstrom and Janus Friis had not yet earned any
powerful enemies, at least so far as they  were aware. They were just two
obscure Swedish entrepreneurs who had worked with three Estonian programmers
to  write a file-sharing application called Kazaa. At the time, the free
program was merely one of Napster's several weak  stepsisters, lumped
together in news reports with the likes of Snarfzilla and ToadNode.

But a few months later, the record industry and its lawyers swatted down
Napster. And Kazaa, with its easy-to-use  interface and reliable technology,
quickly began scooping up users. Kazaa does essentially everything Napster
did, with  one important difference.

Because Kazaa's file sharing relies on routing requests through individual
users' computers instead of central servers, the  record industry has been
unable to shut down the service in court - but not for lack of trying.

As their legal bills mounted, Mr. Zennstrom and Mr. Friis decided to sell
the company to Sharman Networks last year. But  the two have since hatched a
plan that has a chance at causing another, potentially bigger uproar.

Mr. Zennstrom and Mr. Friis have reunited with the same team of Estonian
programmers who wrote the code for Kazaa  and have created a way to allow
people to make high-quality phone calls over the Internet without having to
pay a penny.

On Aug. 29, their new company, called Skype, released a preliminary version
of the program. Already, more than a million  people have downloaded it, the
company's Web site says.

It is "a real opportunity to do something that is disruptive in a very
positive way," Mr. Zennstrom said. "We have a big  ambition with Skype: it
is to make it the global telephone company."

Skype, which rhymes with "hype" and has no particular meaning, allows free
calls between any two users who have  downloaded the software. It is simple
to use and provides clear connections to anyone with a broadband connection
and a  basic headset.

The program relies on a technology called "voice over Internet protocol,''
or VoIP. By routing calls over the Internet,  VoIP essentially turns
computers into phones. It is the core technology driving a number of small
phone companies and is  causing headaches for traditional providers, who are
trying to fend off new rivals even as they attempt to integrate VoIP  into
their own systems.

Everyone, it seems, is getting into the act. Cable companies like Time
Warner Cable are starting to offer VoIP calling  plans; Microsoft and Yahoo
are using the technology to power their instant-messaging programs; and
Cisco Systems is  selling hardware that allows businesses to convert their
internal phone systems to VoIP.

What makes Skype so special? Well, it's free.

And unlike other VoIP offerings, Skype's software and audio connections are
based entirely on the same peer-to-peer  infrastructure that powers Kazaa.
For example, if two users want to call each other, the call can be routed
directly  between their computers instead of having to pass through central
servers. Peer-to-peer routing also frees the company  from having to buy and
maintain much equipment, because its system relies entirely on the computers
of individual users.

Even Mr. Zennstrom, 37, and Mr. Friis, 27, say they are surprised by how
fast Skype is catching on. Based in Stockholm,  the company is controlled by
a privately held holding company called Skyper Limited. It has spent no
money on marketing  the software.

The company does not earn any money right now, but is betting that consumers
will eventually pay for premium services,  like voice mail. This winter,
Skype plans to introduce a feature that will enable users to call people on
regular telephones -  for a fee it says will be "substantially lower'' than
current phone service. That means that Skype wouldn't just allow 
computer-savvy users to call one another; it would allow them to call
anybody with regular phone service.

IN a recent report on the telecommunications industry, Daiwa Securities
wrote that Skype "is something to be scared of,  and is probably set to
become the biggest story of the year'' in the telecom sector. "We think the
Skype offering (and  whatever may follow it) is akin to a giant meteor
hurtling on a collision course toward Earth," the report said.

Other analysts are more skeptical. Eventually, they say, Skype's growth will
depend on customers who do not understand  peer-to-peer networking or have
computer headsets. Moreover, the program works best over broadband
connections,  which just 16 percent of Americans have at home, according to
a May report from the Pew Research Center.

"Will Skype be important and influential? It absolutely has the potential to
be that and to drive regulatory debates and to be  a financial disruption,"
said Blair Levin, a former chief of staff at the Federal Communications
Commission who now  works as a senior telecommunications analyst at Legg
Mason. "But I don't think it's as scary to the phone companies as  Napster
and Kazaa were to the record companies." If the phone companies are scared,
they're certainly not showing it.  "Skype has a couple of challenges,'' said
Vint Cerf, senior vice president of technology strategy at MCI. Most of all,
he  said, Skype "needs to deal with the fact that there are a lot of people
who need to be reached who are not on the  Internet.''

Skype, which has been around for only a month, doesn't dispute that. But the
company says that enabling its users to call  regular telephones is one of
its chief priorities.

And even skeptics who do not think that Skype is much of a threat agree that
the basic technology that drives it - VoIP -  will lead to fundamental
changes in the industry.

"VoIP is going to change everything," says Jeff Kagan, a telecommunications
consultant based in Atlanta.

"The big telecom companies worry that VoIP could completely undermine their
business within 12 months," says Berge  Ayvazian, a senior research fellow
at the Yankee Group.

With VoIP, when someone speaks into the telephone, or microphone, the sounds
are broken down into ones and zeros,  sorted into packets of information,
and then shot across the worldwide network of fiber lines, just like e-mail
messages. At  the designated end points, the packets of binary code are
reassembled and turned back into sounds. In the regular phone  network,
calls initially pass over less efficient copper wires and the phone
companies must maintain dedicated connections  between users, instead of
just mixing the information in with the rest of the Internet.

The first VoIP companies were established in the mid-1990's, but they were
plagued by confusing technology and  connections that made users sound as
though they were talking in caves, and with mouths full of cotton candy.
Now,  though, new engineering, faster connections and agreements on
standards have solved many of those problems. All the  interviews for this
article were conducted either using Skype or an alternate VoIP service.

A few start-ups - most notably Vonage, based in Edison, N.J. - offer
customers complete VoIP calling plans for a fee,  using standard telephones
connected to VoIP adapters. Vonage already has 55,000 subscribers and offers
unlimited calls  within the United States and Canada for $35 a month. The
presidential campaign of Howard Dean has installed Vonage's  system in
several of its field offices.

THE major phone companies have responded with a two-pronged strategy. On the
one hand, they are rapidly building the  technology into their own
offerings. MCI expects to have made a complete transition to VoIP by 2005.
AT&T will offer a  major digital voice service to businesses in 2004 and has
begun a consumer pilot program, based mainly in New Jersey.

On the other hand, the regional Bell companies are arguing for new
regulations that would tie up VoIP companies that let  consumers make calls
to customers on the regular phone network, as Skype hopes to do soon.

According to critics, VoIP companies receive an unfair advantage because the
F.C.C. and state governments regulate  them as information, not phone,
companies because they rely completely on the Internet. That frees them from
multiple  tax and regulatory commitments, like directly paying into the
federal "universal service fund" that subsidizes rural  telephone access.
Some state governments are considering that issue; in Minnesota last week, a
federal judge overruled a  decision by the state's Public Utilities
Commission to force Vonage and other VoIP companies to submit to the
state's  traditional phone regulations. The F.C.C. and Congress will almost
certainly take up the issue soon, too.

"When Congress looks at it, it will be an interesting collision of two
mantras: One, you shouldn't regulate the Internet; and  two, there should be
regularity parity," says Representative Edward J. Markey of Massachusetts,
the ranking Democrat  on the House telecommunications subcommittee.

UNLIKE their experience with Kazaa, Mr. Zennstrom and Mr. Friis said they
did not see any fundamental problems on  the legal front for Skype, a
contention that major phone companies agree with. Skype's main use will
almost certainly be  social - making phone calls.

Ultimately, Mr. Zennstrom said, Skype will have to deal with regulations
once the company allows users to call the  existing public phone network.
But he said he hoped that the Internet service providers that give
subscribers access to  Skype would end up paying the universal service fees.

For the most part, Mr. Zennstrom is taking the same position with Skype that
he adopted with Kazaa. He says that the  company is just providing software;
that users can do with it what they want; and that there are too many
potential legal  issues internationally to worry about them all.

"We don't know if Skype will be banned in Bhutan," Mr. Zennstrom said. "The
only thing that we know for sure is that we  are providing something very
competitive that is very good for the consumers using it. If a country were
to ban it, that  would be very bad for consumers there."

Skype also faces a potential standoff with the F.B.I. Because traffic over
Skype is strongly encrypted and distributed over  wide-ranging sources, it
could hamper authorities' ability to wiretap.

Paul Bresson, an F.B.I. spokesman, said, "It is legal; it is a concern; and
it is something that we are looking into."

For now, Mr. Zennstrom and Mr. Friis are charging ahead. "I am here to have
fun and to have some challenges and try to  achieve them and to make an
impact,'' Mr. Zennstrom said. "Of course, I want to make money, too."

Does Mr. Zennstrom relish the idea of causing trouble for the telecom
industry? He laughed, then said, "Yes, that's fun."

-- 

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