Will Popular Telephony Scare Skype?

Message to Skype Technologies SA: You’ve got competition.

A French startup called Popular Telephony Inc. next month will introduce itself and two peer-to-peer, voice-over-IP (VOIP) software programs, Peerio and Peerio444, at the Supercomm 2004 tradeshow in Chicago, Light Reading has learned. The company’s consumer application, Peerio444, will compete directly with Skype, the highly publicized, free VOIP program from Luxembourg-based Skype Technologies (see Skype Me? Skype You! and VCs Pump $18.8M Into Skype ). But Popular Telephony’s true ambitions lie with Peerio, which is aimed at corporate customers and original equipment manufacturers (OEMs). Peerio444 runs on Windows-based PCs and lets users make free, unlimited calls over the Internet to other PCs. In addition, the software will let users make inexpensive calls to phones on the public switched telephone network (PSTN), including mobile phones, 800 numbers, and international numbers. Free features include voice mail, call waiting, call hold, and call transfer. The product will not contain spyware, adware, or other technologies that have raised concerns about privacy in peer-to-peer file-sharing programs. Popular Telephony plans to release versions for Linux and Macintosh later this year.

Popular Telephony does not expect to distribute Peerio444 as widely as Skype, which has been downloaded over 12 million times and has attracted more than 1 million regular users in eight months, according to Skype Technologies. “We don’t have any plans like we want to conquer the world with [Peerio444],” says Dmitry Goroshevsky, CEO of Popular Telephony. “I’m not saying we have a plan here for 100 million downloads.” The company will offer the program for free through popular download sites and make portions of the source code open for users to modify and redistribute. But it will not spend a lot of money on marketing the product.

Instead, the company hopes Peerio444 will help fuel interest in Peerio, which is based on the same class library as the consumer product. Described as “middleware,” Peerio can be embedded in IP phones, handheld organizers, or other terminal devices used for VOIP calling. Popular Telephony will make money by licensing Peerio to OEM customers, the first of which it will announce at Supercomm (see Mobile Skype: Quality Issues?).

Popular Telephony is betting that devices equipped with Peerio will appeal to corporate customers because the gadgets can communicate directly with each other over IP networks in P2P fashion, eliminating the need for costly central servers. “You won’t need to pay for the expensive enterprise IP PBX infrastructure to get exactly the same level of services,” Goroshevsky says.

Goroshevsky claims Peerio will scale to support the large numbers of users typically found in corporations, though he won’t explain how, promising more details at Supercomm. He adds that Popular Telephony is addressing the security problems inherent in P2P VOIP software. One of Skype’s most valuable features is its ability to pass calls through firewalls and Network Address Translation (NAT) systems. “This is great for users because they don’t need to configure anything, but it is a tremendous security threat,” Goroshevsky says. Popular Telephony is debating whether to include similar technology in Peerio.

Popular Telephony’s pitch to the corporate market “sounds like a tough sell,” says Daryl Schoolar, an analyst at In-Stat/MDR. “Peer-to-peer sounds like too much of a hobbyist, consumer application. They have to do a good job selling quality of service and security. Even with that, you can’t totally replace all of a company’s phone systems.”

Competition will be tough, too. Long-distance providers and regional Bell operating companies already provide VOIP services to businesses by using server-based equipment from vendors like Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Ltd. (NYSE/Toronto: NT). The potential savings from Popular Telephony’s “serverless” peer-to-peer approach may spark interest among businesses, but Skype Technologies is likely to make the same appeal to them, and it can point to its million active users. “I don’t see how someone else starting from scratch is going to get that kind of traction,” says Jon Arnold, an analyst at Frost & Sullivan.

Popular Telephony is incorporated in the U.S. but maintains headquarters in Sophia Antipolis, France, and an engineering team in Israel. The company was started in 2001 with $4 million in seed funding from its founders and angel investors. Originally named CrossOptix, the company had intended to develop ultra-high-speed optical interconnect technology but changed its name and its focus as the telecom industry bottomed out.

Before starting Popular Telephony, Goroshevsky founded Internet Telecom Ltd., a Jerusalem-based maker of VOIP software. In 2000, Internet Telecom sold its assets to Terayon Communication Systems Inc. (Nasdaq: TERN) for $40 million in stock. New York-based investment banker Stewart Rauner arranged the deal and is now an investor in, and a director of, Popular Telephony. In 2001, Terayon management changed its mind about the acquisition, shut down Internet Telecom’s development efforts, and took a $44 million charge.

— Justin Hibbard, Senior Editor, Light Reading

lastmile 12/5/2012 | 3:18:53 AM
re: Will Popular Telephony Scare Skype? Refer msg#1 dated 5/20/2004 :Skype is free and they have over 11 million downloads with over 1 million active users.

Today 4/15/2005:Skype's free software, which has just reached the 100 million download mark boasts of 35 million registered users.

Now a little bit from the news media: Copied from CNET (without their permission)

James Enck, telecommunications analyst at Daiwa Securities SMBC Europe, has tested new features from Skype and said that they work "beautifully." He particularly noted the ability to send voice messages to other users and play them back them offline. "All of this is pretty revolutionary," he said. "It further demonstrates (Skype's) potential to do damage to the telecoms industry."

In less than one year the number of active users jumped from 1M to 35M. This is an exponential increase in numbers the damage to the fixed line telephone operators has just begun.

lastmile 12/5/2012 | 1:45:21 AM
re: Will Popular Telephony Scare Skype? Who is trying to scare whom? Skype is free and they have over 11 million downloads with over 1 million active users.
The people who need to be scared are the revenue losing fixed line phone operators.
Popular telephony will scare those guys and not Skype.
gbennett 12/5/2012 | 1:45:16 AM
re: Will Popular Telephony Scare Skype? Comrades,
I'm still loving Skype after a whole 10 days of use. There are glitches, and I'm dying to upgrade my ISDN home office connection to ADSL (not long now).

But...this week the state of NY said Vonage is a phone company. That means, amongst other things, that CALEA applies. If the same ruling is applied to P2P VoIP technologies, then how would you do legal intercept? This is an open question - I'm wondering if anyone has thought of it (after all, the SIP architects never did).

On the other hand, Skype is not US-based, so I wonder what the laws of Luxembourg say about this? Popular Telephony is based in France, and you can bet the authorities there will want a CALEA equivalent.

Skype calls are also encrypted, unlike most VoIP, and so it becomes significantly more challenging for law enforcement authorities to monitor calls.

The technology exists in many IP Service Switches to block any kind of VoIP, if that's something the SP wants to do (or is forced to do). But SPs don't want to do this because it's an additional cost to a loss-leader service (Internet Access).

Any ideas on how this aspect is shaping up?

stephenpcooke 12/5/2012 | 1:45:13 AM
re: Will Popular Telephony Scare Skype? States, feds headed for VoIP clash

By Ben Charny
CNET News.com
May 20, 2004, 5:57 PM PT

Regulators in large U.S. states are moving forward with Net-phoning rules, forcing an inevitable confrontation with federal regulators who believe the industry falls under their jurisdiction.

By pushing ahead with regulation now, states are facing long battles in court with Net-phoning--or VoIP (voice over Internet Protocol)--service providers that believe existing laws don't apply to them; and later with the Federal Communications Commission, which is expected in the next few months to leave states with very little, if any, regulatory power over Net-based phone calls.

Though small Net-phoning start-ups like Vonage are moving forward unfazed by the unsettled legal and regulatory picture, larger providers that want to play good corporate citizen might be forced to wait the months or years for the regulatory and legal picture to come into focus, industry sources say.

"There will be a collision if the FCC takes a position that's at variance with a state's," said Carl Wood, one of the five commissioners on the California Public Utilities Commission.

Public service commissioners in California and now New York aren't trying to create problems, Wood said, rather they say they're compelled to show the FCC what role states should play over the unregulated industry. The FCC is now deciding on its own whether it will regulate Net-phoning service providers. The decision, not expected for several months, will likely pre-empt many of the state's moves.

"The FCC is interested in state's views, especially when they come from big and important states like California and New York," Wood said. "This could have some influence over the FCC's pending decision."

States are also bound by the law to make such moves, points out Brad Ramsay, executive director of the National Association of Regulatory Utility Commissioners, a trade organization representing state utility commissions. "There are laws on the books, and you can't sit on them forever," he said.

But as states weigh in with regulations, they are creating different rules tailored to their areas, a complex lattice that smaller Net-phoning service providers might not be able to navigate.

"These new developments may lead to the introduction of new regulatory barriers that in fact could slow the adoption of (Internet Protocol) communication services and delay the extraordinary benefits available from such services," Jeff Pulver, the founder of Free World Dialup, a free Net-phoning service, wrote in response to New York's recent decision.
dwdm2 12/5/2012 | 1:45:04 AM
re: Will Popular Telephony Scare Skype? Hi All,

Can someone explain the differences between skype or similar protocols and Internet phone? I use Net2Phone which let me call any phone any where. Its almost like a POTS because they have phone set that plugs in your network, configures itself... you pick up the handset and dial just like a regular phone. Very similar service available from dialpad as well.

OTOH, skype or others I used in the past is database based service. So I am trying to understand what's the benifit of skype and the likes? Thanks
aswath 12/5/2012 | 1:45:02 AM
re: Will Popular Telephony Scare Skype? This is an open question - I'm wondering if anyone has thought of it (after all, the SIP architects never did).

Probably you are correct only if you restrict SIP architects to those who authored the RFCs. As far back as 1999, at least one major VoIP vendor had a solution for this under both H.323 and SIP architectures. It was not an easy sell then, even internally. But eventually the solution became part of the TIPHON architecture.

Skype calls are also encrypted, unlike most VoIP, and so it becomes significantly more challenging for law enforcement authorities to monitor calls.

I am not sure the implication of this statement. I suppose I could encrypt a conversation over a PSTN connection (recall STU III phones?). That has not prevented the authorities from tapping PSTN calls. Should I leave the car unlocked, because a thief can easily break into my car and hotwire it?

Any ideas on how this aspect is shaping up?

Some of the service providers (Cox and AT&T CallVantage) emphasize the fact that they carry the VoIP media traffic over their controlled network. This suggests that they bring the customerGĒÖs traffic to their network, even if the customer is served by an alternate access provider. These service providers can easily tap the media traffic. Many SBC vendors indicate that their product can be used to support CALEA because the media touches SBC. But this feature conflicts with another advertised feature GĒō port optimization. But some of the vendors donGĒÖt recognize this fact, as evidenced by the recent Webinar on SBC.

My prediction is that most of the mainstream operators will support CALEA and deliver even if the media is encrypted and will let LEAs to figure out how to decrypt it, leaving out those service providers who will/can not support CALEA. It will be analogous to the situation where some can buy prescription medicine abroad even though they might be banned locally.
Nichael Johnson 12/5/2012 | 1:30:56 AM
re: Will Popular Telephony Scare Skype? I remember two years ago a company called Nimcat Networks demonstrating a VoIP business communication engine using peer-to-peer call processing. They were riding their solution on SIP. After listening to their CEO at this year's Spring VON, I was convinced that peer-to-peer call processing had a place in voice.

Skype has been concentrating on Public peer-to-peer telephony. There are still a lot of questions around public peer-to-peer business model. Enterprise peer-to-peer does not have any of the regulatory issues, and it does offer advantages over client-server solutions, like scalability.
deweyduck 12/5/2012 | 1:27:49 AM
re: Will Popular Telephony Scare Skype? Taxes eh.. You must know that the current luxury
re excise tax was instigated to pay for the Spanish American War. Taxes never seem to go away.

If the p2p call never touches the local loop, how would anyone tax that call. If two individuals decide to call each other via the Internet, that call will be taxed?? How would a taxing authority prove what was going on? What would the tax be based upon? I can understand if Skype or some other database with customer information being used by a taxing authority but what if that database connectivity server was in some other country than the US. Tax who?


A "temporary" tax created to pay for the Spanish-American War may result in higher fees for Internet telephone calls.

The U.S. Internal Revenue Service and the Treasury Department have suggested that an existing federal excise tax on phone calls should be interpreted to apply to voice over Internet Protocol (VoIP) calls, a move that promises to roil the fast-growing industry and follows similar attempts by state officials to tax or regulate the technology.

In a notice published Friday, the IRS and Treasury Department said they are considering whether the 3-per-cent federal excise tax should be reinterpreted "to reflect changes in technology" used in "telephonic or telephonic quality communications."

"They're looking at VoIP and any other potential technologies that are flying under the radar," said Glenn Richards, a partner at the law firm Shaw Pittman in Washington who represents VoIP companies. "Clearly they're trying to extend their jurisdiction to apply the excise tax to as many 'calls' as they can. It's got to be a revenue issue for them. If everyone starts migrating to new platforms, they're facing a decrease in excise taxes."

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