File-Sharing Pioneer Turns to Free Internet Calling

By Jonathan Krim
Washington Post Staff Writer
Saturday, June 4, 2005

TORONTO -- About 70 miles from the U.S. border that he will not cross, Niklas Zennstrom is pondering which gets him more excited: making life miserable for entrenched monopoly businesses or making money doing it.

The answer is both, and two of the world's largest industries haven't been the same since he went to work. Neither has the Internet.

In co-creating the file-sharing software Kazaa in 2000, Zennstrom helped fuel an online revolution that music labels and motion picture studios say threatens their existence. Sued by the entertainment industry even though he sold Kazaa in 2002, Zennstrom avoids the United States as his lawyers seek to remove him from the case.

Now, the 39-year-old Swede, whom few consumers have ever heard of, is aiming the same technology at something even bigger: telephone calls.

Skype Technologies SA, Zennstrom's newest venture, allows users of its software to talk to each other, via their computers, for free. That's free, as in no cost for either the software or the calls, anywhere in the world. And with none of the legal issues that surround sharing of music or videos online.

In just 18 months, Skype has become a global telephone firm with 40 million users, making it not just the fastest-growing telecommunications company in the world but one of the fastest-growing businesses of any kind.

By contrast, other voice-over-Internet providers, which charge a monthly fee and use different technology, have fewer than 3 million customers combined. Skype is acquiring as many new customers in a week as the best known voice-over-Internet company, Vonage Holdings Corp., has in total.

Zennstrom has done this by circumventing telephone wires and making the phone call just another computer task, the equivalent of sending an e-mail or conducting an Internet search. All that is required is a high-speed Internet connection, Skype's software, and a microphone or special handset for speaking.

"Skype is a huge threat to most incumbent phone companies," said Kevin Werbach, a law professor at the Wharton School and a telecommunications consultant. "The only reason they haven't trained their guns on it is they don't realize that yet."

Some in the industry argue that the cost of a basic phone call is on a path toward zero.

"In the next 10 years, I cannot imagine a telecommunications company that will be able to charge for telephone calls," said Howard Hartenbaum, a venture capitalist whose Silicon Valley firm is backing Skype.

But Skype has limits, and some experts argue that big, traditional players such as Verizon Communications Inc. and SBC Communications Inc. still have a number of advantages.

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