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Last Updated: Monday, 6 March 2006, 11:30 GMT
Hanging on the internet telephone
Skype stand at CES
Skype has added video calls to its service
Technology analyst Bill Thompson wonders what the future holds for today's providers of internet calling services, known as Voice over internet protocol (Voip).

Last month the mobile phone industry held a major conference and exhibition in Barcelona.

Handset manufacturer Nokia used the opportunity to launch the 6136, a mobile that switches seamlessly between GSM and wi-fi networks and lets you swap between your mobile operator and voice over the internet as you talk.

Around the same time Ofcom, the UK communications industries regulator, published a consultation document on Regulation of Voip Services.

This gave us until May to comment on proposals that would bring network telephony operators under the regulatory umbrella instead of treating Voip as a fledgling service that needs freedom to innovate.

It has been clear for some time that voice calls over the public internet will change the way that the telephone industry works, and these two announcements show that this awareness has filtered through to the highest levels of the industry and of government.

A few years ago it would have been unthinkable for a handset company to offer a new phone that let users make free calls without using their network provider.

Vodafone, T-Mobile and the other networks would have let them know that such a phone was not what they wanted, and the idea would have been quietly dropped.

Now there seems to be a widespread realisation that lots of voice minutes are going to be moving online anyway, so it makes sense for a network provider to keep their customers happy, take what revenue they can get from the calls made over their network and look for other revenue-generating services to offer.

Emergency issue

The Ofcom consultation highlights the growing use of Voip in the UK, and suggests that Voip providers who want to be serious providers of publicly available telephone services should have to accept the regulatory framework that applies elsewhere.

Since every incumbent telephone service provider sees Voip as part of its offering, this creates a problem for pure internet players like Skype and Vonage.

Bill Thompson
There is a lot more to voice than just making phone calls, and at the moment Skype is at the bottom end of the curve for these advanced uses
One issue that is particularly important to Ofcom is access to emergency services through a 999 number, something that is technically tricky for Voip providers who are not also conventional phone companies.

Back in May 2005 Skype cut its links to the Norwegian telephone network for a time after the regulator there insisted that Voip providers should offer standard emergency calls. Instead of complying, Skype now accepts that it is not a telephony replacement service and hopes to escape regulation for a while.

However, Skype faces a much bigger issue than how it deals with requests for a 999 service. It may well have proven that the market is ready for internet calling but its architecture and the way it integrates with other Voip services mean that it is likely to be bypassed when network telephony goes mainstream.

Skype is a peer-to-peer network, with no centralised server to run or pay for. Even its directory is distributed over the network.

It manages this through a technical architecture and set of protocols that it has developed itself, outside the standards bodies which have been working on voice over internet for many years.

The dominant standards in this area are SIP, or the session initiation protocol, and H.323, originally developed for doing multimedia over local area networks. Both are widely used by voice providers, but not by Skype, which instead has its own proprietary standards for its peer-to-peer offering.

Skype certainly works, providing a service that is generally reliable, offers good voice quality and seems scalable to millions of users. But that may not be enough.

There is a lot more to voice than just making phone calls, and at the moment Skype is at the bottom end of the curve for these advanced uses.

Voice competitors

A lot of work is going on to create network-based analogues of switchboards which closely integrate voice services will all the other ways we like to use our computers, and attention has focused on the open source Asterisk project.

As Cambridge computing entrepreneur Quentin Stafford-Fraser points out on his weblog, one such service, an open source application called Gizmo, lets him "have UK phone numbers which will forward to my Gizmo session here in California. For free. I can use Gizmo to call up my Asterisk server and listen to MP3 files and podcasts stored on my hard disk. For free. I can connect directly to Google Talk, or to dedicated Voip phones."

Phone and CD
Supermarket giant Tesco recently launched a Voip service
Closed services that are just replacements for conventional phones, whether they are provided by Skype or by the existing telephone companies, don't do this.

Yet instead of enhanced telephony Skype is focusing on enhancements like video calling which just make it more of a competitor to Google Talk, AOL Instant Messenger and MSN Messenger, all of which offer voice chat as part of their portfolio.

That is not telephony and it is not a way to make money: there is a reason why Google, AOL and Microsoft appear so prominently in the names of their services and it is not that IM generates lots of cash.

And although Skype gets revenue from SkypeIn and SkypeOut, offering links to the phone network, it will be harder to persuade users to install a completely separate client and pay yet another intermediary for phone calls once these networks offer enhanced, standards-based voice services of their own.

Last September eBay paid $2.6bn for Skype in a move that many found hard to understand and which it may already be regretting.

Given the speed with which the existing phone companies have moved in on the Voip market there would seem to be two options for the new owners.

The first is to rebrand it as eBay Messaging, a voice-based instant messenger service with added phone integration.

The second would be to list this well-loved but proprietary Voip service on the world's biggest second-hand marketplace.

I am sure someone at eBay knows how to do that.


Bill Thompson is a regular commentator on the BBC World Service programme Go Digital



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