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Turning the world into a smaller place with calls

First they turned the music industry on its head. Now the men behind the revolutionary file-sharing program Kazaa are setting their sights on an even greater target: the telecom industry.

If Niklas Zennstrom and Janus Friis succeed they would instantly star in one of the most disruptive chapters in modern economic history. Two plain guys with a great idea and plenty of guts who would bring down some of the world's most powerful companies.

The funny thing is that with the backing of over US420 million in venture capital funds (and plenty more to come), this pair of unlikely business revolutionaries may well succeed.

They have a pioneering technology that could make big savings for everyone who makes phone calls, and it has been downloaded over 12 million times since they quietly launched a preliminary service nine months ago.

The tool is Skype, which currently allows users to talk over the Internet with anyone else who subscribes to the service. No big deal, you may think, since people have been chatting over data networks since the early days of the net, despite often appalling sound quality.

But in the same way that Kazaa took the initial idea of Napster and improved it beyond compare, Skype has taken the voice-over-Internet protocol (VOIP) concept to a new level in terms of quality, functionality and ease of use. The implications of this will change the telecom industry for ever.

"I knew it was over when I downloaded Skype," Michael Powell, chairman of the US Federal Communications Commission, told Fortune magazine recently.

"When the inventors of Kazaa are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it's free -- it's over. The world will change now inevitably," Powell said.

For many of of Skype's users in over 170 countries, it already has.

The downloadable program allows you to use a directory to search for other people who have registered with Skype. Click on a user, and his computer starts ringing and you can speak with crystal-clear clarity.

Of course both computers must be linked to the Net, and have a microphone and speaker or headset.

In the not too distant future such restrictions will be meaningless. Wireless Internet networks (Wi-Fi ) will cover every modern city and Net access will be nearly ubiquitous in laptops, personal digital assistants and cellphones.

Even now, users rave about the Skype experience. Argentinian-American Maria Ardiles used to speak only rarely to her family in Buenos Aires. Now she sits and chats with them for hours from her San Francisco apartment.

"It's amazing, like having my family live next door. Skype is free so I talk with them whenever I want," she said.

Like Kazaa before it, Skype's advantage lies in its ability to take complex technology and make it easy to use. Kazaa is still used by 10s of millions of music fans, but it's caused major waves in the music industry and both the company and users of Kazaa are being sued by recording industry.

Skype copies Kazaa's peer-to-peer network model that essentially delegates all the heavy lifting like routing the calls and indexing the subscriber lists to the users' computers. As the MIT Technology Review noted, "By clever use of software, Skype can outsource the entire business of running a telephone network to its own users".

But since no one ever got rich giving away all their products, Zennstrom and Friis have plans to begin charging. Not for the calls themselves -- Zennstrom says the idea of charging for calls belongs to the last century -- but for added services like voicemail and making calls to the conventional phone network.

"Skype is not about cheap, discounted prices," Zennstrom told attendees at a VOIP conference on in San Francisco Tuesday. "It's about enhanced features, superior voice quality and putting power in the hands of consumers."

But Skype still has a lot of hard work to do. Numerous companies already offer VOIP services, such as AT&T Corp, Time Warner and Net2Phone. The field is also being eyed by IBM Corp and Cisco Systems announced this week that they were teaming up to promote Internet telephony.
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