Skype is not the limit

TECH TALK

When Namita Sarma (name changed), a Mumbai resident, went to Austin, Texas, for her master's degree in the fall of 2003, she dreaded the distance from her boy friend and family back in India.

The public affairs graduate student was on a tight scholarship that would cover her tuition, living and a monthly binge at Trudy's, a local pub favoured by penny-pinching scholars. American phone companies, notorious for making money through fine print, were not very inspiring and call rates from India to the US were still expensive.

Around the same time, an unheard of start-up from Tallinn, the capital of Estonia, Skype Technologies SA, cranked up a beta-version of its voice over internet protocol (VoIP) service. For the end user it was different from extant VoIP services: its voice quality was excellent - better than landline voice quality most of the time - and it was free.

In the nearly two years it's been around, Skype has gone from an obscure company that wowed geeks on online tech discussion lists to a VoIP service that is growing faster than any comparable communication service. Along the way, Sarma, a self-confessed neo-Luddite, logged on to Skype and reduced what could potentially have burnt a hole in her pocket.

Sarma included, Skype, headquartered in Luxembourg these days, has had over 67 million downloads - one-third of which are active accounts - and is adding 150,000 customers every day.

Skype's popularity lies in its simplicity and its continuous additions of innovative features: it allows customers to talk free from a computer to computer, swap files, message instantly and hold conference calls - all at a quality unheard of. In addition, a customer can call a landline or wireless number anywhere in the world from a PC for up to 10 hours for approximately $12 (Rs 520).

For founders Niklas Zennstrom and Janus Friis, Skype is the second successful 'peer-to-peer', or P2P offering. Both of them were the founders of Kaazaa, a file swapping service that had more than 370 million downloads, which is a phenomenal achievement considering there are less than a billion online computers in the world.

How does Skype work? In addition to a very nifty algorithm that makes feature addition a breeze, Skype uses the spare bandwidth on the customer's internet connection and her computer's processing power to carry these calls. With, say, a million connections fired up at any point of time in the world, the Skype P2P network virtually rivals any traditional telecom company's network of switches and long distance capacity.

The power and scale of the Skype network grows as it adds each customer: it costs a tenth of a cent to add one compared with the $200-600 (Rs 8,700-26,100) it would cost for a traditional telecom provider. With each new log on, the power of the 'mesh' network (in terms of bandwidth and processing muscle) keeps growing, enabling better quality and call completion rates.

Skype has also been making forays into the lucrative mobile phone space. Since February, it has announced three initiatives to take Skype wireless. It has partnered with i-mate to embed Skype on its PDAs and smartphones, allowing customers to talk under WiFi hotspots. Motorola is working on mobile devices that will allow customers to use Skype while on the move.

Broadreach Networks, a British internet service provider, allows free access to Skype at the WiFi networks it runs at train stations, cafes and retail outlets in the UK. As such partnerships expand and the computing power of mobile phones and PDAs rocket together with a drop in prices, Skype promises to make a significant dent on the business projections of cellular networks especially where it hurts - international roaming and conference calling.

The traditional telecom firms will not be the only ones under pressure; other VoIP firms such as Vonage or AT&T's CallVantage are feeling the heat too.

Yet Tallinn's most famous export has more than a handful of rivals on the horizon. Babble, a service started by Cambridgeshire, UK-based BON.net Ltd., has started offering PC-to-PC calls free at excellent quality and charges £5 (Rs 395) a month for 1,000 minutes of calls from Britain to the US, Australasia, Scandinavia and other parts of Europe. Stanaphone, a VoIP foray by New York-based hosting services provider Intermedia.

NET, Inc., offers more or less a similar package. Vonage, likely under pressure from investors, is almost surely developing a counter-offering as we speak. Then there is Google which is reportedly interested in a VoIP service like Skype to integrate into its core search business.

As VoIP gets rolling with a lethal mobile edge, the old world of telecoms, despite being inured to sweeping technology and structural changes, looks set to be winded by a small wave started in a tiny European capital.

Josey Puliyenthuruthel can be reached at josey@vsnl.net