It is likely that almost all computer users are familiar with email, and probably instant messaging as well. In a matter of a few years, the Internet has completely changed the way we communicate with each other, with one exception, the Telephone.

Nothing has yet replaced the ritual of picking up the phone and dialing a number to have a conversation, and it’s unlikely that anything ever will replace voice communication the way that email has erased hand written letters. However, the Internet does provide possibilities for making the calling process more flexible, and most importantly, more affordable.

Today we are going to look at Skype, an Internet Phone application currently going through a free beta-test, and generating a lot of buzz. We’ll also examine how Internet telephony works, and why you should care. It’s been said that Internet based voice calling will replace traditional telephone networks, the only question being how long it will take. Skype could be one of the applications that make this a reality.

VoIP crash course

Voice Over IP is the process of transmitting voice communications, like phone conversations, over an IP based network like the Internet. It uses IP addresses instead of phone numbers, and Ethernet cable in place of phone wire. VoIP can performed by an application like Skype, or a device like an IP phone.

The major difference between IP based voice communication and the telephone network we are all accustomed to using is the method of sending data. Both methods convert sound to electrical signals (data) and send it over a network to the recipient, where it is converted back. The networks they are sending data over are vastly different, however.

A Public Switched Telephone Network (PSTN), our standard phone system, forms a circuit between the caller and the callee which stays connected for the duration of the call. IP calling uses the Internet, a packet-based network. This means that data is transferred in discrete packets which are sent from source to destination independently and assembled when they get there. This is more efficient and much less subject to distance issues than a PSTN. This is half the reason why VoIP calls are so much cheaper than PSTN calls. The other half is the fact that the Internet is more or less globally maintained, whereas phone systems are implemented and maintained by individual governments and corporations. So while you and your phone company need to pay for the right to use a remote phone system to connect, there is no such need on the Internet. Once you are on it, you can send data without restriction or cost.

So free phone calls for everyone right?

Hold on a sec. VoIP programs like Skype have the run of the Internet, and no one is trying to charge long distance rates for that (at least not yet), but there’s a bit of a snag when it comes to regular phones. See, regular phones are connected to regular phone lines which are administered by regular phone companies who would like regular payment for their services, thank you very much.

Understandably, the company you pay for your telephone access is not overly keen on the idea of you being able to dial up anyone, anywhere in the world, for free. They don’t have much to worry about though… In order to bridge a call started on the Internet (via a VoIP application or phone) through to PSTN (Public Switched Telephone Network) phone, a special connection device is needed to bridge the gap between the packet-based Internet and the circuit-based telephone network.

The VoIP Gateway is a device that connects and translates the Internet and a regulation phone line. A user makes a local phone call or a VoIP call to the gateway, which then transfers the call over the Internet to a second gateway which dumps it back onto the regular phone system at that location.

In this way, long distance charges can be circumvented, and regular phones used to call computer systems and vice versa. However, while these VoIP Gateways are available, they are not yet at a cost or a simplicity that would make them desirable for home users. Also, in order to use them effectively, you need a gateway at every location you intend to call regular phones at. This is expensive and complicated, which explains why full global VoIP calling is still the domain of major corporations and institutions that can afford the initial expenditure required to set up a VoIP network.

VoIP is becoming more common internally, within large institutions like college campuses. There it provides an effective means of communicating within the campus grounds, requiring only an interface to the regular telephone system to ensure that any calls out are transferred to that network.

To sum up, things get complicated when you start thinking about calling from your computer to someone else’s phone. As long as you keep things strictly Internet-based though, there’s no extra cost incurred, paving the way for services like Skype.

More @ source link.

SAN JOSE, Calif. CuPhone, a San Jose based provider of the world’s leading personal internet telephone products, today announced a new feature upgrade on their Personal Phone Gateway (PPG) to support «Skype to Phone» and «Phone to Skype» functions.

Enabling the «Skype to phone» function in the Personal Phone Gateway (PPG), Skype users can freely forward incoming calls to a pre-set phone number. This includes cell phones or land phones. The «Skype to phone» feature allows Skype users to never miss any calls and have the freedom to answer calls anywhere.

In addition, with the new PPG features, users also have access to the «Phone to Skype» function. Skype calls therefore can be made, while out of the office, to anywhere in the world for the cost of the call back to the office or home line that is Skype and PPG enabled.

The PPG is available today for a one off cost of only $29. CuPhone’s PPG supports Windows XP, 2000, ME, 98, and is fully compatible with worldwide phone systems that are FCC and CE approved.

In addition to the Skype phone gateway function, using PPG in conjunction with CuPhone’s USB internet phones, anyone can implement their own personal long distance call network and eliminate long distance carrier or «net phone» service provider charges.

For further information, please visit www.cuphone.com/skype.

To purchase a PPG unit, please visit www.cuphone.com/order.

Skype is a registered trademark of Skype Technologies SA.

By Alex Salkever

Skype requires no configuration changes and easily passes through firewalls and other computer-security systems that trip up many voice applications. So far, Web surfers have downloaded 18.5 million copies of the software since it was released in August, 2003. Skype has also put out versions for computers running Linux and for PDAs running Microsoft’s PocketPC operating system.

Niklas Zennstrom, founder of peer-to-peer telecommunication company Skype Technologies, is no stranger to controversy. As the creator of file-swapping software outfit KaZaA, Zennstrom unleashed the code that enticed tens of millions of Web surfers to become music pirates.
The unrepentant Zennstrom and fellow founder Janus Friis distanced themselves from KaZaA two years ago through a series of byzantine legal maneuvers. Now Zennstrom and Friis are attacking another staid industry, global telecommunications. But their technology of choice remains P2P.

Skype’s only product is a small and easy-to-use piece of software that allows two people on the Internet to communicate via high-quality voice calls for free. The interface resembles those found in instant-messaging applications from Microsoft (Nasdaq: MSFT) and America Online. To make a call, users don a headset equipped with a microphone, select a name from their buddy list on their screens, and click the green telephone icon.

Viral Growth

Skype requires no configuration changes and easily passes through firewalls and other computer-security systems that trip up many voice applications. So far, Web surfers have downloaded 18.5 million copies of the software since it was released in August, 2003. Skype has also put out versions for computers running Linux and for PDAs running Microsoft’s PocketPC operating system.

Zennstrom claims to have nearly 8 million regular users, making Skype one of the fastest growing viral applications ever. On July 27, he responded to critics’ concerns about his revenue model by launching a pay service -- SkypeOut, a program that allows Skype users to make calls to regular telephone numbers anywhere in the world over the Skype network at dirt-cheap per-minute rates.

The real results will depend on Skype’s ability to sustain revenue-generating businesses. It won’t be easy, but it can be done -- as Yahoo! and MSN have shown with the huge number of repeat and captive visitors they’ve brought in by offering free e-mail.

Heavyweight Partners

«One day, we will look back and wonder why we ever paid for phone service, in the same way that we now look back and wonder why we ever paid for e-mail,» says Steve Jurvetson, a managing partner at venture-capital firm Draper Fisher Jurvetson. His firm was one of the early investors in both Hotmail and Skype. Jurvetson and other investors see Skype as a massive multibillion-dollar business ultimately and hope it will be the next big tech IPO after search-engine Google goes public this month.
Many telecom insiders scoff at such predictions. They say Skype will remain a niche player and never hit critical mass because competition for voice calls has heated up markedly in the past year. As of the first week of August, 2004, Skype had barely made a dent in the $1 trillion global telecom industry. Since inception, the Skype network has carried 300 million minutes of voice traffic, a fraction of 1 percent of international voice traffic without even counting local phone calls.

Critics further note that Skype’s proprietary technology «will make it harder for them to connect with other networks, and that could work against them,» says Lou Holder, an executive vice-president of leading Internet telephony provider Vonage.
Still, some companies are taking Skype seriously. Zennstrom has already signed deals with four global telecom heavyweights, including Level3 and Teleglobe, for its SkypeOut service. Federal Communications Commission Chairman Michael Powell is a fan and has given kudos to Skype in public speeches.

Tiny Market Share
Leading PC and telephone headset-maker Plantronics, a grown-up company by anyone’s standards, signed a deal last year to promote its headsets to Skype users and to plug Skype on its in-store packaging materials. And an executive from one of the world’s largest telecommunications-equipment suppliers has taken a seat on Skype’s board.

«They have a very interesting business with very interesting technology,» says Sureel Choksi, an executive vice-president at Level3. And Skype seems to be in the right place at the right time. The voice-call biz is undergoing a sea change as more and more telecom operators turn to the same technology that powers the Web -- Internet Protocols (IP) -- to run their phone networks.
According to telecom researcher Telegeography, carriers using IP handled only 150 million minutes of international telephone calls in 1998. That’s less than 0.2 percent of total minutes. That number soared to 18 billion or 11 percent of the international total by 2002. Telegeography expects the tally to increase to 24.5 billion, or 12.8 percent of the total, by 2003.

Two of the largest Voice-over-IP (VoIP) carriers, IXTC and iBasis (which has a deal with Skype), handled 2.5 billion minutes in international traffic in 2002, placing them in the ranks of the largest international telecom carriers in the world in terms of call volume.

Telcos Jump In

Most of these calls were conducted using IP on private networks, but it’s still progress in the effort to make the Internet the preferred medium for voice communications. And the proliferation of broadband connectivity at work and at home has finally made Internet calling a potentially viable business.
As of May, 2004, 47.8 percent of home Internet users in the U.S. had broadband connections, according to Web traffic tracker Nielsen/NetRatings. And at work, 79 percent of U.S. workers have a high-speed connection. In Korea, Canada, and Japan the percentage of home users with zippy hook-ups is closer to 75 percent.

To tackle this market, a host of companies, including Vonage and Lingo, have garnered hundreds of millions of dollars in startup capital to build systems that use the public Internet to make phone calls. Some of the biggest names in the telecom and cable broadband businesses, including Comcast (Nasdaq: CMCSK) , Cox Communications, and AT&T (NYSE: T) , have joined the fray by bringing out their own IP-based phone services.

These offer local and long-distance service for a flat fee. Fearful that these offerings will accelerate the slow-motion implosion of the local telephone access market, the Baby Bells have decided to offer Voice-over-IP (VoIP) services as well -- which will be competing directly with their own more lucrative legacy services.

Overseas, Internet calls are offering even fiercer competition to legacy telcos. Japan’s Yahoo!BB, a Softbank subsidiary, throws in free domestic long-distance and local calling with a high-speed DSL connection. It costs less than $40, about half of what such a package might cost in the U.S. today. All of this market upheaval is presenting opportunities for newcomers, including Skype.

Men of Mystery

Skype is an unusual competitor with a shadowy past, staffed by the same Estonian programmers that produced KaZaA. Fearful of a lawsuit related to its piracy battles with the Recording Industry Association of America , Zennstrom and Friis refuse to travel to the U.S. and maintain a veil of secrecy over Skype and the location of its offices. Investors or partners seeking audience with Skype and its founders have to e-mail a generic information address via the company’s Web site .
This veil will have to lift soon, Zennstrom admits. Skype currently has about 70 employees at its two offices in London and Talinn, Estonia. That’s up from 30 in January, 2004, and Zennstrom is still hiring. «We plan to grow for now, but if the revenues don’t develop, then we can cut back and continue to operate indefinitely with the $18.8 million we have already raised,» says Zennstrom.

Those numbers may sound small, but the cost of adding a new user to the Skype network is effectively zero. In effect, Skype hitches a free ride on the broadband connections its users are already paying for while shouldering none of the upkeep costs inherent to maintaining a big data network. Unlike the traditional telephone systems or the IM networks, Skype requires no central servers to direct traffic.

«Certain Types of Users»

Is the service any good? Zennstrom claims it has greatly improved over the past 12 months and is now even better than the voice quality of the public telephone network, let alone the sometimes jumpy connections offered by other VoIP startups and the current versions of AOL (NYSE: AOL) and Yahoo’s (Nasdaq: YHOO) voice-IM software. It’s a bold assertion, and the big telcos dispute it. But the key word here, however, is free.
It isn’t that Zennstrom has no interest in making money. Skype plans to start charging for services such as voice mail soon. Meanwhile, its user base guarantees advertisers a captive audience. Still, Zennstrom is careful to say that Skype will not replace the public telephone networks any time soon -- if ever. «We will serve certain communities and certain types of users,» he says. And while he wants to grow Skype into a big business, he envisions an outfit employing 1,000 people or so. That’s a far cry from the telecom behemoths.

Still, grabbing even a small portion of such a massive sector could turn into a boffo business. And just as KaZaA altered the music landscape forever by making free tunes readily available, Skype has already played a key role in what will likely be a revolution in the telecom business. Prodded by Skype, instant-messaging providers are souping-up their voice capabilities and further blurring the line between phone networks and the Internet.

Fight for Riches

Furthermore, a raging price war has broken out in the global VoIP market, sparked in part by Skype’s free model. One new entrant, StanAPhone, is offering free Internet calls from the PC to the public telephone network. Another carrier, Primus, has started a program that offers unlimited calling within the U.S., Canada, and Western Europe for only $20 per month.
Is this all a race to the bottom? Perhaps. But Skype stands to make a decent amount of money on the ride down.