Sum of all fears: will peer-to-peer disintermediate telecom?

America's Network, Nov 15, 2004 by Dan Sweeney

Will peer-to-peer have a lasting impact on telecom? "I knew it was over when I downloaded Skype," says FCC Chairman Michael Powell. "The world will change now inevitably." The impact of peer-to-peer (P2P) technology on telecom may be all-encompassing, direct and inevitable. If it lives up to the hype--and, perhaps more importantly, if it scales.

Powell, who made his comment several months ago, is hardly alone in recognizing the influence of Skype, an upstart phone services provider that has seen its software downloaded more than 23 million times since its launch in August 2003. The company, based in Luxembourg, claims 12 million users from every country in the world. Skype takes the concept of inexpensive IP telephony one step further: Free.

It uses the same P2P technology that launched highly popular but controversial file-sharing sites Napster and Kazaa and takes it into the world of Internet telephony.

So far, Skype and P2P have been largely a consumer phenomenon. But that reality is rapidly changing. Just last month, talking to Internet telephony conference attendees in Los Angeles via the Web, Skype executives announced plans to offer a business telephone service for "individuals and workgroups" (as opposed to corporate CIOs).

The new business service will include free software to allow unlimited calls between Web-connected PCs and digital assistants. Skype offers another service, SkypeOut, that allows users to complete calls to standard PSTN numbers for a nominal fee of about 2 cents a minute. Skype co-founder Niklas Zensstrom told the L.A. audience the company has more than 100,000 accounts for the new service.

Of course, the critical question behind all this buzz is simply: Is there a viable business case behind what Skype and other P2P advocates are doing? And is that case sound enough to alter the long-term prospects of carriers offering traditional circuit telephony services?

"In the long view, let us say 10 or 20 years out, Skype probably represents the direction in which the industry is headed," claims Dan Freedman, CEO of Jasomi Networks, a major manufacturer of border session controllers for VoIP service providers. "I could see voice services evolving to the point where there are providers of a bit pipe to the Internet and then naming services that locate the individual being called, and that's about it. In that context, peer-to-peer architectures work well, and they certainly pose a threat to incumbent voice carriers."

What Freedman, Zennstrom and other P2P proponents appear to advocate is a network without most of the appurtenances that characterize all legacy services operating today, whether traditional circuit or the newer VoIP models. P2P technology requires no infrastructure and virtually no capital investment. Instead, users (and Skype has 750,000 of these every day) share computer resources to create the network and manage the traffic flow.

Their network, of course, comes without any significant amount of telecom "big iron," and thus is also without the built-in cap ex and op ex costs that have restricted voice services primarily to the same incumbents providing them over the course of the last hundred years. It's a network that, by some accounts, promises to provide the basis for a truly competitive marketplace for voice services. Others are less sanguine: They see P2P obliterating the profit potential for traditional voice.

VANISHING INFRASTRUCTURE

For those of who have watched VoIP from the outset, Skype evokes a strong sense of deja vu. Talk of radical disruption and the obsolescence of conventional circuit voice was much in the air back in 1994 when the first VoIP software platforms appeared in the marketplace. If anything, the fervor of new-economy types in proclaiming the death of circuit was even greater then.

This, of course, was not to be. True, such early VoIP software enabled the caller to bypass class 4 tandem switches entirely and to disguise the call as best-effort data traffic, thereby eliminating the requirement for conventional voice switches. But unfortunately, the recipient had to be online to receive the call. There were no ring-through mechanisms. So calls had to be pre-arranged rather like traditional conference calls, a deficiency that greatly limited the practicality of early VoIP. Nor was there any means for controlling latency and jitter. Predictably voice quality was indifferent to poor.

Such early VoIP platforms were arguably peer-to-peer. Certainly they shared with Skype and its ilk (such as FireFly, VoicePulse, and AOL Voice Chat) the requirement that the conversants already share a computer connection prior to the initiation of voice communication. But Skype--if the claims of its developers are to be believed--goes much further and posits a number of mechanisms by which the traditional PSTN might be truly challenged.

SKYPE'S BENEFITS

With a Skype-enabled telephone instrument such as Skype's own branded phone or the recently introduced Gigaset from Siemens, ring-through is no longer a problem. The phone maintains an always-on Internet connection, and provides a ringtone when a call is initiated. And Skype claims other benefits as well.