Billions for Skype one of many changes in voice over Internet market

  • Business
  • Wednesday, 21 Sep 2005

BOSTON (AP)- What a difference a year and $2.6 billion (euro2.1 billion) makes. 

The renegade cool that once surrounded Skype Technologies SA at past gatherings of the Internet telephone industry has been replaced by mockery and awe at this week's VON show. 

Nearly every speech or conversation at the conference that opened Tuesday has turned at least briefly to last week's news that Skype, a free computer-to-computer phone service, is being acquired by Internet auctioneer eBay Inc. for an unfathomable sum in this upstart business.  

The $2.6 billion tag could reach $4.1 billion (euro3.4 billion) depending on Skype's performance. 

Some of the chatter has been dismissive and critical of Skype and its "peer-to-peer'' technology. But the Skype deal and smaller acquisitions by Microsoft Corp. and Yahoo Inc. also are sparking optimism that the industry is now pushing into the consumer and corporate mainstream after a decade of promises. 

"Skype has done the community at large a favor,'' said Mark Spencer, a mini-rock star in that community who created a free "open source'' platform for office phone systems based on Internet Protocol technology. 

The Linux-based platform, named Asterisk, has been downloaded by developers more than a quarter million times this year. 

"Skype demonstrates a very important principle that people want something that works,'' said Spencer, whose company, Digium Inc., announced a deal with Intel Corp. to create software drivers for Intel hardware to work with Asterisk systems. 

One Asterisk programmer at the show used the platform to create a service to connect people displaced by Hurricane Katrina with friends and family.  

The service, called Contact Loved Ones, lets evacuees punch in a home number where they're no longer located and record a message. Acquaintances who dial in and enter the number will be played that message and can leave their own. 

Yaacov Menken, one of several Princeton University alumni who collaborated on the service, said doing that with a traditional phone system would have cost tens of thousands of dollars. 

"An open source (phone system) allowed small people in this industry to do something large,'' said Menken, who heads Capalon Internet Solutions in Baltimore. 

Despite hints of scorn or envy, a keynote address by Skype founder Niklas Zennstrom drew a large crowd even though he was to deliver the speech remotely using a new video version of his companys phone service. 

However, as seems customary with any live demonstration at a technology convention, the connection wouldn't work due to what the company called "cabling issues'' on the other end and then a problem projecting his image on the big screens. 

"I don't know if the sound you hear is the sound of eBay's stock going down,'' jokedBlair Levin, an industry analyst for Legg Mason, as he addressed the crowd while Skype's technicians worked to resolve the problem. They didn't, and so Zennstrom was forced to deliver his speech without video. 

(Levin's remark was playing off a comment by comedian Conan O'Brien at an electronics show earlier this year during a failed demonstration by Microsoft Corp. Chairman Bill Gates). 

Levin said that government regulation is still likely to favor the traditional telephone industry despite the technological endorsements suggested by the eBay deal and recent acquisitions in the industry by Yahoo and Microsoft. 

Such regulation, which Skype and others have largely avoided, can mean hefty expenses for the smaller companies providing Internet-based voice technologies - complicating the cost savings that the new services tout. 

That reality was evident recently in the decision by the Federal Communications Commission to require all voice-over-Internet services to provide enhanced emergency call capabilities by late November. 

Importantly, while Skype built an immense user base of 53 million with its free calling service, most of the company's minimal revenue comes from connecting its users to the public telephone network. 

"If a service connects to the (public telephone network), it will get dragged into the regulation of a (traditional phone) service,'' Levin noted. - AP 

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