Internet Changes Everything

Skype phone service closer

Yahoo! News - Skype phone service closer

Sat Jul 24, 6:46 AM ET

By Dawn C. Chmielewski, Mercury News
Internet telephone upstart Skype on Friday moved one step closer to offering local phone service.

The Luxembourg company finalized deals that will let 7 million Skype users make phone calls from their computers to standard phones for less than 1.5 cents a minute. However, a person using a land line phone will not be able to call Skype users over the service, called SkypeOut.

It's a milestone for Skype, the Internet phone service launched in August by the two technology renegades that created the Kazaa file-sharing phenomenon. The software allows people to place free phone calls anywhere in the world. But previously both the caller and the person receiving the call had to talk over computers that had downloaded Skype's software.

"For Skype it's a big deal, because it takes them out of the computer-to-computer only calling and it puts them into the computer to real-world calling sector," said Ben Silverman, a telecommunications analyst for FindProfit.com, an investor newsletter. "It's significant especially in light of what's been going on."

Said Skype co-founder and Chief Executive Niklas Zennstrom in a statement: "We will now move quickly and offer SkypeOut calls to land line and mobile phone numbers around the world."

The announcement comes at a time of upheaval in the telecommunications world. AT&T announced Thursday it would no longer seek new residential customers. And Verizon Communications introduced its own Internet phone service.

Daryl Schoolar, a senior analyst for researcher In-stat/MDR, said traditional phone companies are under attack from all sides. Once-lucrative long-distance revenue is being undercut by cellular phone plans that don't charge for nationwide calling.

And flat-rate Internet telephone services, such as Vonage and AT&T's CallVantage, are cutting into the market for second home phone lines and advanced calling services, said Schoolar.

The early popularity of Skype, with more than 16.8 million downloads, only fuels such competitive pressures.

On Friday, Skype announced a deal with Level 3, a leading telecommunications wholesaler with a fiber-optic network of 23,000 miles throughout North America and Europe. Level 3 provides what is known as voice termination: taking a phone call placed from a computer and seamlessly connecting it to the local phone network. It's a significant player, with $4 billion in revenue.

Skype also unveiled agreements with Colt, iBasis and Teleglobe to provide the same sorts of call termination services worldwide.

Analysts say it's too soon to predict winners in the fast-emerging realm of Internet phone service, where Skype will compete for business with Verizon, AT&T and Vonage.

"The people they've attracted so far, between this and Kazaa, are people who don't want to pay for something," said Schoolar, the analyst. "It's like inviting 2 million shoplifters into a store hoping to have a sale."

Contact Dawn C. Chmielewski at dchmielewski @mercurynews.com or (800) 643-1902.

July 24, 2004 at 06:45 PM in Telecommunications | Permalink | TrackBack (11) | Top of page | Blog Home