Free phone calls draw nearer

Talk will be cheap thanks to companies like Skype. Peter Munro met its co-founder, Niklas Zennstrom
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The promised future of free telephone calls lies on an anonymous, solitary stretch of Soho in London. Behind a blank door, with only a small card above the doorbell to signal its existence, is the second-floor, walk-up office of Skype.

It is a surprisingly sombre place. The eye of the hurricane that promises to blow apart the old telephone companies looks and sounds like a call centre.

But here cometh the Norseman of the Apocalypse in pinstripes. Niklas Zennstrom speaks softly but has a potent promise: free telephone calls over the internet from anywhere to anywhere. Skype's simple software has already taken 68 million voices around the world, prising them away from telecom giants such as BT.

"They have enjoyed 130 years of good profitability," Zennstrom says. But now, their star is "reaching the end of its life cycle. It's going to die."

This unlikely buccaneer - Swedish, 39 - has been to the edge before. With his Danish partner, Janus Friis, 29, he created KaZaA, the music file-sharing company that mortified the major record companies before becoming mired in lawsuits, from which Zennstrom and Friis are still trying to free themselves. This time the two Scandinavians see a future where all phone calls will be free.

Google launched its voice over internet protocol (VoIP) software last August. Soon afterwards Microsoft bought Teleo, a San Francisco-based VoIP provider. BT, AOL, Apple and Yahoo! had already joined the internet telephony party. But timing is everything. Using VoIP even five years ago was feasible but inelegant. Zennstrom and Friis decided to bide their time while broadband take-up grew. It now has more than seven million subscribers in the UK.

Skype's success is certain - people love cheap talk. In two years, a company once derided as a toy by the telecoms giant AT&T is the biggest kid on the block and adding 175,000 users a day. No one is laughing any more. Last September, eBay acquired the company for $2.6bn (£1.5bn), with the promise of a further $1.5bn subject to performance.

The online auction house hopes to make more out of car sales and even enter the property market with the aid of Skype links, which will connect buyers and sellers directly.

These are high hopes for a company that earned only one 600th of its total purchase price last year. But Zennstrom insists that Skype won't lose its way. "Skype is bigger than a product. We are going to make it into the world's largest communications company." Zennstrom predicts that in five years most people will be using the internet to make calls. But first he must overcome China's ban on SkypeOut, Skype's system that allows users to call any land-line or mobile anywhere in the world at local rates.

"EBay is a platform from which we can grow faster, but we will remain a standalone company with our own organisation, brand and culture," he says. He knows that people love pirates more than businessmen. He wears open-necked shirts, catches the Tube to work and flies economy.

Skype's founders met in 1997, when Zennstrom hired Friis to work for a Danish ISP. Fortune magazine has dubbed the Swede with the master's in computer engineering and the Danish high school drop-out the leading disrupters of established technology, mavericks whose ideas give corporate titans cold sweats.

They have money to burn but no inclination to spend it on flash offices or advertising. "If you look at all the successful technology companies, eBay, Yahoo!, Google and even Apple and Microsoft, the people who started these companies did not do that because they wanted to become very rich. Their drive was that they were passionate about what technology can do to change peoples' lives," Zennstrom says.

"Bill Gates had a vision that there should be a PC on every desktop, Larry Page and Sergey Brin [of Google] were passionate about making it easier to find everything, David Filo and Jerry Yang [of Yahoo!] wanted to organise the internet."

Be prepared for Skype to rewire the planet - wirelessly. It has teamed up with leading players in wireless fidelity (wi-fi) networks, which are linked to more than 18,000 hotspots. Yesterday it was announced that the company, with Google, had joined an international consortium that is investing €18m (£12m) into the Spanish start-up Fon, with the aim of building the world's biggest wi-fi network.

"Probably in 20 years' time we won't even be talking about VoIP," Zennstrom says. "VoIP will be the way telephone networks are."

He expects Skype's $7m earnings for 2004 to grow to $60m for 2005-2006 and then to $200m. "There are 200 million people with access to broadband internet and this is growing. Google, Yahoo! and eBay are making fantastic profits. Not future earnings but actual, real earnings. It is not a bubble. Bubbles burst."