Free phone the world

MEDIA: Just as computers have revolutionised most other communication, they and the companies that drive them are about to enable free phone calls to anywhere in the world. Conor Brady reports

An acquisition worth $4.1 bn is a big deal in anybody's language. When the previous year's revenues for the company in question barely exceed $7 million it seems an extraordinary price to pay. But that is what Ebay put up earlier this month in order to secure control of a relatively unknown telecommunications operation called Skype.

Three years ago Skype did not exist in any substantive way. Its growth from virtually nothing has been based on its development of voice-carrying broadband software that enables customers to communicate computer-to-computer (and computer to land-line or cellular) as if by telephone. Most modern laptops come complete with a built-in, two-way microphone. For those that don't, a plug-in mike costing perhaps €10 will do the trick. So the laptop can be a phone – while the phone is a laptop!

And calling computer-to-computer on Skype is free – or at least it has been until now. Skype users have been chatting away across continents for the past couple of years without paying a cent.

The deal is remarkable for the high acquisition price vis-à-vis historic earnings. But it may be also be significant as heralding the ultimate convergence of telephony, computer-technology and consumer-focused business that has been signalled for perhaps a decade by media gurus. It may mark the ultimate synergy between the various components of modern communication that has been visualised by social analysts like LeMahieu, Black and Boorstin. With this much money going into it, there can be certainty that something big is happening. $4.3 billion doesn't travel for no good reason.

The internet's inherent ethic has been that it is free of charge. Telephony, by contrast, has always been costly for the end user. The concept of free telephony is a radical one. Anybody who comes to the marketplace offering free telephone calls is potentially destructive of the powerful positions – and massive revenues – enjoyed by the major telecommunications corporations. Yet they have been slow to respond, much less get ahead of the emerging threat.

Microsoft has acquired a company called Teleo which does much the same thing as Skype and earlier this month Microsoft promised to present what commentators have dubbed a "Skype-killer." Google and Yahoo have made similar promises of free telephone calling, although initial ambitions for these services do not appear to go beyond the United States.

Skype's revenues came in at around $7 million in 2004. This year it is reckoned they will be around $60 million. And in 2006, they say, revenues will more than treble from the 2005 figure to top $200 million. If these projections are fulfilled, Ebay's massive investment will begin to make more sense.

Meanwhile some industry experts are doubtful about the viability of what Ebay says it will do with Skype. Ebay executives say that adding a voice facility to its existing, massive sales network will give it extra value and will allow it to charge suppliers for sales leads. But this is traditional Yahoo and Google territory and there can be little doubt that the natives will mobilise every resource they can to defend it – fast. There is also uncertainty about the possible response of the big telecom companies, especially those still owned in whole or in part by states. The Chinese state-owned telecom corporation has begun a programme to block Skype users in China and the authorities are promulgating fines and even imprisonment for people who violate the law.

However it plays out, it seems certain that we are approaching an important watershed in the evolution of modern media and communications. The possibility of free voice contact across the planet, along with free messaging in text and images, is an awesome concept, profoundly subversive of the certainties upon which media and communications corporations have been built. And as consumer business transfers increasingly to the internet, by extension, traditional business assumptions are also undermined.

Media analysts have had a term for this going back to the 1970s – "convergence." In 1970, Alan Stone envisaged a "happy marriage made in Heaven between computers… and telecommunications." The marriage did indeed take place and it has endured. It has produced prodigious numbers of children, some of whom (as in human marriage) take more after one parent, while others reflect the characteristics of the second parent. And as with human marriage, one partner or the other may appear from time to tie to be dominant.

The American writer and philosopher, Daniel Boorstin (The Republic of Technology 1978) defined the process of convergence as "the tendency for everything to become more like everything else." And so it has come to pass. Newspapers get read on the computer as much as on newsprint. TV programmes are watched on laptops. We listen to our favourite radio shows via the internet when we are on the far side of the world. We shop for everything from holidays to motor cars on the net. Our entertainment, our banking, our grocery-orders, our mail, the very stuff of our trade or business – all now travels on the one informational super-highway.

The concomitant is that it becomes increasingly impossible to differentiate between news, entertainment, advertising, personal mail, business, study, work and so on.

Boorstin died in February 2004, having watched "everything become more like everything else" in media at break-neck speed over the previous decade. He saw the functionalities of TV, the computer, the telephone and the printed word accelerate through a process of continuous convergence. One fancies nonetheless that he would have been astonished to know that a young company combining the functionalities of the laptop computer, the voice telephone and the internet could be worth the GDP of a small country.

Conor Brady is Emeritus Editor of The Irish Times. He is a senior teaching fellow at the Michael Smurfit Graduate School of Business, UCD, where he lectures in modern media