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Better than plain old telephone service?

The technology used by Skype is transforming the global telecommunications industry.

A model displays a new IPEVO Free.2 Skype internet phone during a news conference in Taipei, Jan. 17, 2007. (Richard Chung/Reuters)

SAN FRANCISCO — Make a phone call that crosses a national border and, without even knowing it, you're probably using a technology that is transforming the global telecommunications industry.

The technology, known as Voice-over-Internet-Protocol (VoIP), began in Israel in the mid-1990s and was popularized by startups like Skype. It chops conversation into thousands of digital data packets, sends these packets over the internet and reassembles the conversation at the other end — bypassing the traditional phone system and its per-minute charges.

“VoIP began as a much cheaper way to make international and long distance calls,” said analyst Ken Landoline of Synergy Research Group in Reno, Nevada.

Now it is now being quietly adopted by telecommunications carriers in Europe, Asia and North America. Analyst Jeff Pulver said VoIP as a technology has been more successful than Skype, the Scandinavian company that was acquired in 2005 by eBay, the online marketplace. EBay recently spun Skype back off again to compete more freely in the VoIP marketplace.

“Skype as a company hasn't done all that well, but VoIP has gotten a lot of traction in the telecom world,” said Pulver, who tracks the industry through his website, Pulver.com. “The incumbent telecommunication carriers, especially in Europe and Asia, have embraced VoIP to make themselves more competitive.”

Pulver said the Israeli company VocalTec unveiled the first commercial VoIP system in 1995. Skype debuted in 2003 with VoIP software that enabled computer users to have conversations through their PCs, via the internet, essentially for free.

“Skype became very popular very quickly,” Pulver said. “In 2004 and 2005 it was threatening every major phone company.”

In 2005, eBay bought Skype for more than $2.6 billion, hoping to weave online conversation into its digital marketplace and thus spur more transactions. Pulver said the acquisition never delivered the benefits eBay expected and blunted Skype's momentum as an alternative to traditional phone carriers.

In September, eBay sold a controlling stake in Skype for nearly $2 billion to a group of outside investors that includes browser software pioneer Marc Andreessen. Whether the new ownership will revive Skype as a challenger to the telecom status quo remains to be seen.

http://www.globalpost.com/dispatch/technology/090911/talk-internet-transforms-phone-calling