anyone follow?, page-6

business sunday...love it :-) ntc ssooo oversold Free phone calls
Sunday, June 26, 2005

"It's obvious to me that telephone calls are [becoming] free and if you fast forward by ten years, no phone company will be able to charge for phone calls ... so there is a transition of revenue streams from telephony to broadband access for phone companies."


For more than 100 years, telephone companies have relied on the profits and revenue gained through people making calls to each other. But that revenue is rapidly disappearing with the advent of what's called VoIP technology, which allows households and businesses to use broadband Internet access to make free calls all over the world. The technology is a serious threat to all major phone companies. Telstra and the other carriers are seeking to embrace the new technology while attempting to control the loss of traditional revenue.

One of the true giants in the Internet phone world is Niklas Zennstrom, whose skype.com has gained 40 million users in just 18 months. Business Sunday uses the new technology to interview Zennstrom, who is also the brains behind Kazaa, the online music business. This special report on how to kill your home and your company phone bill is essential viewing.



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ALI MOORE: The lure of free phone calls has a certain ring to it. But to take advantage of free calls business and households will be reliant on broadband connections. So the giant telecoms are trying to rapidly replace the money they make from voice calls with that broadband revenue. Just as quickly, a new wave of entrepreneurs is trying to snatch the market away. Ross Greenwood reports on this remarkable new technology.













ROSS GREENWOOD: From old phones like this, telecommunications has become a breathtakingly complex business with a language of its own, now to illustrate VoIP in its simplest form we are going to show you how to make a free phone call via your computer. You will quickly understand the implications for business, and also for your home phone bill. Now first, you need a computer, and a broadband connection.

So does your friend or business office you want to call. There are many sites like this, but we've chosen Skype — it was one of the earliest sites to enable computers to be used to make phone calls. It's probably the most famous VoIP site of all.

You download the program — it takes just a few minutes. You register your details, give yourself a name. The person you are calling also has to have Skype installed, and you can do a search to find them anyway. You might choose to use a microphone or headset — but many companies now offer traditional style telephones as an alternative. You click on your contact and start talking. But here's the rub — you talk as long as you like, just about anywhere in the world. And it doesn't cost you — or you company a cent, apart from computer costs — which you'd be paying anyway, plus one-off hardware costs. And just look at how many people are talking right now.

PAUL BUDDE, TELECOMS ANALYST: This VoIP changeover is going to happen within a couple of years, not in a couple of decades, and the telcos are very slow in reacting. They try to protect their existing businesses as monopolies as long as possible rather than trying to get into new opportunities.

ROSS GREENWOOD: Paul Budde is a communications consultant based in Sydney. So how easy is it for a competitor to the big telcos to set up a VoIP business?

PAUL BUDDE: VoIP will become part of a lot of service providers so you can be a service provider, an Internet service provider, and there are millions of them around the world, and you can simply add voice to it or any other service can add voice to it. For example if you buy my package of xyz then you get a free voice service from me at no cost to you.

ROSS GREENWOOD: At it's simplest, VoIP means if you're connected to your computer anyway, you might as well use it to talk to people without going through the phone system. The technology to do this at acceptable quality is pretty new, and the smaller players got in first. However, as you will see later in the story both telcos and business are rapidly embracing this new technology, and for good reason. In the meantime I've got to a call coming in.

"Niklas, Hi there."
"Hi, how are you doing?"
"Very well thank you."

We're talking to Niklas Zennstrom in London via his own Skype technology. We're just using microphones and speakers on our computers. Niklas was the brains behind the notorious Kazaa file sharing music company. He co-founded Skype — he's one of the VoIP bigwigs, his company has 40 million subscribers, and he's only been going for 18 months.

NIKLAS ZENNSTROM, SKYPE TECHNOLOGIES: It's obvious to me that telephone calls are turning into free and if you fast forward by ten years no phone company will be able to charge for phone calls, so it is always a big revenue source goes away from them, so there is a transition of revenue streams from telephony to broadband access for phone companies, so I think we are actually helping them out in the transition.

ROSS GREENWOOD: Even if a Microsoft or an AT&T or a very large telecoms company tries to target and attack you because you have the distribution base already there, do you feel you can actually withstand if you like, the pressures that they can bring to you.

NIKLAS ZENNSTROM: Companies who are the best suited to provide software and Internet services are independent companies who are focused on that rather than the big giants, so I think we are much better suited to provide this service than a telco because we are focused on our what we are doing, focussed on our software development, and we provide the service independent of the networks so we are pretty confident that we have a good sustainable model that will be able to sustain competition from the big companies. I think it is all about being fast rather than being big in this sense.

ROSS GREENWOOD: While calls to other Skype users are free, it makes its money by charging for putting calls through to users who haven't got Skype. And there are hundreds of companies that can let you talk via your computer. For example, engin charges a fee for its hardware and a fee for a plan — some companies like msn let their members talk — even with video — as part of its service. But it's when you get to the big end of town that you'll see how serious this is all for companies.

MICHAEL COOMER, WESTPAC, BUSINESS & TECHNOLOGY SOLUTIONS: We should be deploying around 27,000 devices across Australia and probably close to 2000 devices across New Zealand later next year.

ROSS GREENWOOD: Westpac is embracing VoIP technology in a very sophisticated way. They're using it to bundle together a wide range of services, from video links to high speed data transfer.

MICHAEL COOMER: The good news for us is that we're significantly enhancing our capabilities, lifting the capability around voice over IP and portability pretty much for the same costs we pay for redundant technology.

ROSS GREENWOOD: Why is it that your phone bill through this voice over Internet doesn't dramatically fall compared with your previous system?

MICHAEL COOMER: The first reason is it's a significant advancement in the capabilities we have today so there's always a small price to pay for that, the second thing is the volume and usage that we'll have across the network will grow exponentially and the good news is here, for no additional cost.

ROSS GREENWOOD: So literally a phone here on the computer matches the phone here, that you have got beside you as well. Cisco systems have sold about five million Internet phones around the world, about 230,000 of them in Australia, — combined with wireless technology, your phone becomes your office, wherever you are. So in other words you don't use your mobile phone here, you are using your own application, connected via wireless and so therefore you are killing mobile phone bills as you go.

ROSS FOWLER, CISCO AUSTRALIA, MD: Absolutely.

ROSS GREENWOOD: Ross Fowler is Cisco's Australia's managing director. But the notion of the free phone call it clearly has dramatic ramifications for giant telecoms companies, what impact do you see on those telecoms companies?

ROSS FOWLER: I think those companies are going to have to look at much more than just the provision of basic voice transport, voice calls, its about integrating voice into business applications and business processes, and it's about delivering productivity. So how can the telcos combine voice with existing IT and Internet applications to deliver more value added services to their customers — that's where the action is.

ROSS GREENWOOD: So what does all this mean to Telstra? Well Telstra's revenue last year was 21.2 billion dollars, of that one and a half billion came from local calls, a further 1.1 billion dollars from long distance calls, and 266 million dollars from international, and all of this 13 percent of Telstra's venues is seriously in question because of VoIP, so it is no surprise that Telstra's new boss, Sol Trujillo, was quick to mark his territory in this key area.

SOL TRUJILLO: Clearly we need to migrate to an all IP based network, there are cost advantages, service advantages, all kinds of customer related advantages. However there is always a practical side in terms of how you do it, when you do it and what speed you do it.

ROSS GREENWOOD: Far from admitting defeat, Telstra is putting on a brave face. With its huge infrastructure already in place, Telstra's Rosemary Howard says they're well prepared for the VoIP assault, and, in fact, they're embracing it.

ROSEMARY HOWARD, TELSTRA MD, VOICE & CONVERGENCE: What you'll be paying for in fact are these convergent solutions of which your voice service will be but one part but you'll still be paying for your access line that's going to become more and more important, you're going to need higher and higher speeds on that access line, you are going to need your Internet access, you'll be paying for your voice services in some way or another, and you'll be paying for more and more of these on line services that you will be wanting to access.

ROSS GREENWOOD: Which is shown by Westpac working closely with Telstra on its new project rather than using the public Internet — security is a big concern.

MICHALE COOMER: The public network or the Internet is not secure, it's not industrial strength and its fine for the person who wants to use that type of capability from home using a microphone and a speaker, but when you start talking about providing very confidential information across networks then we have to make sure it's as secure as possible.

ROSS GREENWOOD: So the consensus seems to be that the way ahead for companies like Telstra is to converge services such as video and data, and market them accordingly. The solitary voice in the crowd, as we know it, is dead as a revenue earner — killed off because, basically, it's become free.

PAUL BUDDE: So the telcos will rapidly have to change there business moulds in order to make money because the money is not coming from voice any more.