Online Extra: The Word on Skype: "It Really Works"

A BusinessWeek reporter tests the free Net phone service -- and becomes a convert

Working overseas for BusinessWeek, I spend a fair amount of money -- certainly more than I'd like -- on phone calls to family and friends in the U.S. and Europe. Since moving to Paris in 2001, I've used a succession of cheap long-distance services to trim those phone bills.

First I tried the former state-owned monopoly, France Telecom (FTE ), choosing a package that gave me discount rates to select countries, including average prices of 21.6 cents (17.3 eurocents) per minute to the U.S. Then I signed up with Sweden-based Tele2 (TLTOB ), Europe's largest independent telco, which offered a much lower tariff to the U.S. of 7.8 cents per minute. Tele2 lets me dial almost normally, requiring only a different first digit to access its network.

Finally, on the recommendation of a friend, I tried 3U Telecom, a German startup with rates of only 6.1 cents a minute. The only drawback to 3U is that I have to enter a four-digit dial-around code before each call. The extra work seems well worth the savings.

Then I heard about Skype, a radical new telephony service from London startup Skype Technologies. Skype offers free phone calls from one PC to another over the Internet, as long as both parties have signed up to use the service. Since I was writing an article for BusinessWeek about Skype, I figured I had to give it a try.


  The good news is that Skype really works. Downloading and setting up the free software on my PC was a breeze. The user interface is clear and simple. And the quality of the calls is really amazing -- as if the person you're speaking to is right there in the room with you.

What's equally interesting is that Skype redefines the whole experience of voice communications. It works more like instant messaging than a plain old phone. A small window on the PC screen shows which of your Skype buddies are currently online and signed in, and to initiate a call, you just click on a name. Skype also includes an instant-messaging client so you can talk and text at the same time or send files and photos during a call. And it lets up to five people join into a free conference call with a click of the mouse.

Of course, it has some obvious drawbacks. For one thing, you have to be in front of your PC (or Mac or Linux system) to make or receive a call. Plus, even though more than 12 million Web surfers have signed up to use Skype, lots of folks you need to reach -- businesses, government offices, technophobes -- mostly haven't.

Skype is working to overcome these issues. It has partnered with Siemens (SI ) on a new cordless phone that will allow users to wander around the house while calls are routed through their PCs. Skype is also available for PocketPC handhelds equipped with Wi-Fi wireless networking, so anybody with such a device near a Wi-Fi hotspot can make free Net calls.

Further, Skype is mounting an initiative next year to make its service more appealing to small businesses, adding features like voice mail, larger conference calls, and software tools to tie the Skype client into company phone directories. Still, you can bet it'll be a long time before your bank or insurance company supports Skype calls -- if ever.


  My experience installing and using Skype was marred by only one problem: hardware. To test the service, I bought a Plantronics (PLT ) headset that plugs into the sound card in my PC. But I also have PC speakers and can't use them and the headset at the same time. You're better off buying a USB headset (which can plug into any USB port, rather than into the sound card). Or you can opt for just a desktop microphone and play Skype calls through your speakers. It's amazing to hear a crystal-clear phone call booming out of them.

Once I solved my hardware problems, I found it easy to place free calls to other Skype users in London and New York. Being able to send instant messages at the same time was cool, though I don't know how often I would do it in real life.

On the other hand, it was frustrating not to be able to leave a voice mail for somebody who appeared to be online but was, in fact, away from their desk. Skype intends to offer voice mail and other services soon as a paid add-on. That's one of the ways it aims to make money, since free phone calls won't generate revenues.

A few pet peeves: Skype buddy lists can't be accessed from any PC other than the one where the software was originally set up. So if you're at another PC, you have to enter names manually. I was surprised that the "search" function for looking up other Skype members failed to find somebody who I knew was a subscriber. And though the service does an amazing job of getting around firewalls, it can't get past corporate proxy servers unless they're reconfigured to allow it. That prevented me from using Skype over my company's private network. Fortunately, Skype calls are already encrypted for security.


  The company has also recently introduced SkypeOut, which lets Skype subscribers place calls from their PCs to regular phones for 2.1 cents a minute. (Calls to some countries and to mobile phones cost more.) But my experience with this service was less rewarding.

When I was reporting my article for BusinessWeek, Skype tried to impress me by conducting an interview with the CEO using SkypeOut. Bad idea. The sound kept breaking up and fading, and finally I had to insist he call back on a regular line. Then, one of Skype's financial backers phoned me over the weekend using SkypeOut and left an incomprehensible voice mail.

When I tried SkypeOut from my own PC, the results were better. A five-minute call to a colleague in New York set me back just 10.6 cents -- in keeping with the promised rate of 2.1 cents per minute -- and the quality was O.K., but not great. No stuttering or dropouts, but the sound wasn't as good as regular Skype.

A 12-minute, 26-cent call to my parents on the West coast didn't go quite as well. The tinny sound made me feel like I was a kid again, talking through tin cans and string. Skype says it's aware of the quality problems and is adjusting the capacity and location of the gear that transfers calls from the Net onto the conventional phone system. In a few months, things may be a lot smoother.

No question, I'll continue using Skype whenever I can. Sorry, France Telecom, Tele2, and 3U -- it's hard to argue with free calls. Now the only challenge is to get my friends and family to sign up. And wouldn't you know it, that's exactly what Skype wants me to do.

By Andy Reinhardt in Paris

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