The Kazaa Boys Are at It Again

By Duff McDonald

Swedish entrepreneurs Niklas Zennstrom and Janus Friiss have already shaken the music industry to its roots with their Kazaa file-sharing software. Now Zennstrom, 37, and Friiss, 27, have turned their attention to another industry: telephony. The duo's new creation is known as Skype, and they hope it will do for phone calls what Kazaa, which lets millions of users get songs for free, did for file sharing. Download Skype's software www.skype.com and buy a $15 headset, and you can make free phone calls worldwide to anyone else who has installed Skype. Like Kazaa, the system has no central servers, instead harnessing all the network's computers, or nodes, to handle routing, processing and call encryption. While the most obvious drawback is that you can only call other Skype users--one point bears repeating: it's essentially free.

And improving. Zennstrom and Friiss say Skype users will be able to call anyone--non-Skype users included--in 2004. The pair plan to make the business profitable by charging for services such as call waiting, multiple lines and voice mail. More than 2.5 million copies of the basic program have been downloaded since its August release.

If that's too much bother, several IP-based companies can provide service over your existing phone. "The barriers have fallen away, and this sector is about to explode in the face of the incumbent telephone companies," says David Isenberg, a former Bell Labs researcher and respected industry observer. Vonage, for example, has 70,000 customers paying $34.99 a month for unlimited calls in the U.S. and Canada. You just link your phone to your broadband connection via an adapter. An added perk: you can choose any area code in the country. Buy a second line for $4.99 a month, for instance, and select the area code of the college your daughter attends so that all her calls home will be local. Companies like Packet8, VoicePulse and Addaline all offer some variation on the Vonage deal. Voicepulse, for example, offers a "telemarketer blocking" feature that will even hang up on calls made by autodialers. Now that's something worth paying for. --D.McD.