At first glance Niklas Zennestrom is an unlikely revolutionary. Tall, softly-spoken and bespectacled, he seems more like an advertising or marketing executive than an anti-establishment technology radical.
Yet the 37-year-old Swede already has a reputation for upsetting the status quo. As the co-founder of Kazaa, whose file-sharing technology has become the most downloaded software in history, Zennestrom became a thorn in the side of the entertainment industry just when it was celebrating the demise of Napster.
A whole generation has already swapped music with friends online thanks to Kazaa’s technology — much to the dismay of record and film companies that lost sales as a result.
Now the 1,94m-tall entrepreneur is at it again, and this time he and his business partner, Janus Friis, are on collision course with some of the biggest names in the telecommunications industry. Actually, a collision might not be the best way to describe it. After all, a minnow would hardly make much of an impact if it swam into a whale, and Zennestrom’s latest company, Skype, is certainly small-fry when compared with the likes of the world’s telephone giants.
However, when a senior executive at United States telecoms behemoth AT&T recently described Skype’s Internet offering as a ”toy”, it was certainly dismissive, but perhaps also a sign that the industry is a little nervous that Zennestrom might work his Kazaa magic in the lucrative telephony market.
So what is it that Skype is promising that is so different, so revolutionary, that a company such as AT&T would deign to take notice? Quite simply this: free telephone calls.
Zennestrom’s London-based company is offering high-quality, free voice calls made via a computer armed with nothing more than an Internet connection, free software, speakers and a microphone. This method of making voice calls from PC to PC-Internet telephony or voice over Internet protocol — has been around for a few years, but until now the quality and reliability of calls has not been great.
Adapting the peer-to-peer technology behind Kazaa has allowed Skype to decentralise the call-routing system, avoiding the cost and potential delays of a centralised network. It means its system can be used by millions of customers simply, reliably, with a quality of sound that matches or even beats traditional phones — all at no cost if you already have broadband.
The distance and duration of a call — the factors that determine the prices of existing telephony — are simply irrelevant. It also only takes about 30 seconds to get it up and running. As a result there have been seven million downloads of Skype software within a matter of months and already there are 3,1-million registered Skype users worldwide. And rising.
So perhaps we should take seriously Zennestrom’s claim that one day soon, all voice calls will be free.
”Yes, it’s obvious,” he explains matter-of-factly. ”It’s like, I worked for a telephone company 10 years ago and the telecom industry wanted to charge for e-mails, they even wanted to have different fees for whether you sent e-mails domestically or internationally. That did not really work out and people now accept they don’t pay for sending e-mails. The same thing is going to happen to telephony.”
Zennestrom outlines his key vision for voice calls.
”What is happening, and what we are proving, is that telephony is becoming a software application on the broadband Internet rather than a telephone network.”
But will calls truly be free one day? Zennestrom does not expect the monoliths of the telecom industry to give up their lucrative charging for phone calls easily.
”I’m sure that companies like British Telecom [BT] will continue to try to charge for voice calls. But now consumers have a choice, it’s up to them whether they want to make free calls or whether they want to pay for their calls. It’s competition,” he adds. ”We hope that we can drive prices down to zero. We think that’s the sweet spot for voice calls, zero.”
His view is partly endorsed by leading industry technology player 3Com.The company’s international market development manager for enterprise voice solutions, Mike Valiant, says companies will soon not be able to afford to charge for calls.
”It makes no sense to charge for traffic for voice calls as the prices come down, as it’s so expensive to gather the data,” he says. ”It just makes a nonsense of billing — we are seeing that already.”
Instead, Valiant believes, the inexorable trend is towards fixed monthly charges that allow consumers to make unlimited phone calls whenever and wherever they like. But he warns that while phone calls may feel as if they are free to consumers, they will not be.
”I don’t think it will be free in the sense that we don’t pay anything, it will be free in the sense that you won’t pay per call,” explains Valiant. ”You will be charged a flat rate to make voice calls.”
This is a strategy that is now being followed by major industry players such as AT&T and Britain’s BT, who will be launching a flat-rate telephony service — voice over broadband — later this year.
A key question for consumers, and also for the survival of companies such as Skype, will be the ultimate level of that pricing. If the additional cost of voice calls using broadband proves to be inexpensive, will anyone really feel the need to move to or keep a free Skype service? At which point they risk getting squeezed out of the market.
In any case, Skype has to make money of its own, to satisfy the venture capitalists who have so far sunk millions into it. It plans to do this by charging for additional services such as voicemail, and by doing partnership deals with the manufacturers of Internet phones. Zennestrom says they do not need to make huge amounts of money from consumers to make a healthy profit.
”The only cost we have is software development,” he insists.
None the less, for as long as Internet telephony co-exists with the traditional phone network, there has to be a method of switching voice calls from one system to the other, via gateways, and this does cost money.
That is why when Skype introduces the ability to phone the old telephone network from a PC later this year, it will charge a modest fee — as companies such as Net2Phone already do. It is little wonder that Zennestrom thinks traditional companies such as BT should focus on rolling out broadband as quickly as possible. For Skype the rapid adoption of broadband is not just important but essential for its future.
Zennestrom estimates that the take-up of broadband is doubling every one-and-a-half years.
”People who are using broadband connections … if they find out they can make completely free and perfect calls over the Internet, that’s a trend that will continue,” he says. — Â