Tune In, Turn On, Skype Out

[David Farber <dave () farber net>]

Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: July 1, 2004 9:44:54 AM EDT
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] Tune In, Turn On, Skype Out
Reply-To: dewayne () warpspeed com

Tune In, Turn On, Skype Out

By Kevin Werbach
 Published 
 07/01/2004 
<http://www.techcentralstation.com/070104F.html>


Somewhere between Sweden, Estonia, and London, a small band of software 
developers is fomenting a revolution. Their product, Skype, has been 
downloaded fifteen million times worldwide in less than a year, without 
any marketing budget. It is provoking consternation among government 
officials. And it has large incumbents worried.

 If that sounds like the profile of peer-to-peer (p2p) file-sharing 
programs like Napster and Kazaa, it should. Not only is Skype a product 
of the same team that launched Kazaa, the most popular p2p file-sharing 
application, Skype is a p2p tool itself. Only, with a twist. Instead of 
sharing files, Skype shares voices. It is a voice over IP application. 
And in mid-June, with no fanfare, it blew a hole in the Federal 
Communications Commission's halting efforts to micro-manage the 
transition to a VOIP world.

 

Skype's great step forward is called SkypeOut. A Skype user can now 
call any telephone subscriber in more than a hundred countries. Fees 
throughout the US and most of Europe and Asia are .012 Euros per 
minute, or about 1.5 cents. And Skype is global. There is no difference 
between domestic and international service: a call to New York from 
Japan is the same price as one from Philadelphia. Calls to other Skype 
users still cost exactly zero.

 

SkypeOut's low rates for global dialing are a boon for users. SkypeOut 
also shows how quickly a company can innovate when it leverages the 
open Internet data platform. There is perhaps no clearer proof that 
voice telephony, which generates hundreds of billions of dollars a year 
for carriers, will eventually be seen as a feature of the Internet, 
rather than the reverse.

  

Yet, there's a catch. SkypeOut creates new fissures in the FCC's shaky 
VOIP regulatory edifice.

 

Until now, Skype was a private service. A Skype user could only call 
another Skype user. Skype also requires a user to plug a microphone and 
headset into a PC, rather than calling through an ordinary telephone. 
These aspects, combined with the fact that Skype was free, appeared to 
bring it squarely within the confines of the FCC's Free World Dialup 
order. In that decision, the Commission held that a free, private, 
software-based VOIP service should be treated as an unregulated 
information service. Three months later, it reached the opposite 
conclusion with regard to AT&T's VOIP backbone transport offering, 
holding it subject to legacy access charges as a form of regulated 
telecommunications.

  

The FCC, in essence, set up two goalposts. On one end, full regulation, 
and on the other, complete freedom. Unfortunately, the playing field in 
the middle has no yard markers. The FCC's distinctions are of little 
value when a Hail Mary like SkypeOut can take the form of a transparent 
software update. Skype is also partnering with handset vendors to embed 
its software, freeing the service from dependence on a PC. In other 
words, it no longer fits neatly into the FCC's framework.

 

FCC Chairman Michael Powell recognizes the challenge Skype and similar 
services represent. Speaking to a conference at UC San Diego in 
January, he acknowledged that the regulatory approach the FCC had 
followed for seventy years was dead. Finished. Kaput. Or, in his words, 
"I knew it was over when I downloaded Skype. When the inventors of 
Kazaa are distributing for free a little program that you can use to 
talk to anybody else, and the quality is fantastic, and it's free - 
it's over. The world will change now inevitably." Powell wasn't just 
talking about the free, PC-based Skype. He clearly understood that it 
was a matter of time before Skype bridged the gap to the more than one 
billion existing phone users. And he understood that it was as much an 
opportunity as a threat to the FCC's underlying public policy goals.

 

In such an environment, the FCC should devote itself to facilitating 
the transition from circuit to packet networks for voice. If it tries 
to fight Skype, it will face the same war of attrition that has 
bedeviled the music industry. That would benefit no one, least of all 
the American people.

 

As voice telephony becomes a software application, its evolution will 
accelerate. The bridge from curiosity to mainstream may be short. 
Regulators should pave the way, or they will find themselves left 
behind.

Archives at: <http://Wireless.Com/Dewayne-Net>
Weblog at: <http://weblog.warpspeed.com>

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