Skype’s Vision

The Economist profiles Niklas Zennstrom, who co-created Kaaza and Skype:

So far, Skype users have only been able to call other Skype users from their PCs. But the latest version of the software, which is now being tested, allows Skype users to call ordinary telephones too. While Skype-to-Skype calls remain free, users must pay to call ordinary phones: but rates are low, with most calls costing around 1 cent a minute. This puts Skype in direct competition with traditional phone companies, alongside a growing band of other small firms that offer low-cost telephony by routing calls partly over the internet. By bypassing the traditional phone network as much as possible, they can avoid the fees charged by traditional operators for carrying calls over their wires.

But Mr Zennstrom thinks that merely linking traditional and internet-based phone systems is an inelegant halfway house. He is more radical, believing that all calls will migrate to the internet and be provided via software alone, with no need for any dedicated infrastructure. Telephony will be another free internet service, like e-mail and web browsing are today. (Skype plans to make money by charging for extras such as voice-mail, call waiting, multiple lines and calls to the few die-hards who stick with pre-internet phones.) If he is right, the traditional fixed-line voice business will shrivel and die, and telecoms incumbents will be reduced to selling broadband access, and little else.

Mr Zennstrom has competed with telecoms giants before, having worked at Tele2, then a small Swedish operator, during the 1990s. He came to the conclusion that only a radically new approach to telephony would ever be able to challenge the incumbents, whose ownership of national telephone networks gives them a huge advantage over their competitors. Skype is the result. So how can the incumbents respond? Some are rushing to launch their own internet-telephony services, but most are trapped in the monopolist mindset. Mr Zennstrom recalls their attempts in the early 1990s to establish fee-based proprietary e-mail services, in effect clinging to the old idea of the telegram. Such services were wiped out by internet-based e-mail, which was free. The same, he believes, will now happen to telephony.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.