Tense Times for Web Phone Apps Google Voice, Skype

By Clint Boulton  |  Posted 2009-10-04

Tense Times for Web Phone Apps Google Voice, Skype

News Analysis: What is happening to two of our favorite Web phone applications? They're being threatened, but in markedly different ways.

First, Google Voice, the Web calling management application. Google Voice gives users a phone number that can forward calls to any other number they want, including home, office and mobile numbers.

Apple rejected it, ostensibly to keep a competitor from its door. See, Google Voice has a dialer function that replicates that on Apple's smash-hit iPhone. Call it good ole fashioned gamesmanship between two Silicon Valley rivals. These BFFs have gone the way of Paris Hilton and Nicole Richie.

Most recently, Google Voice came under the gun from AT&T, which whined to the Federal Communications Commission that Google Voice is getting away with network neutrality murder.

AT&T complained about Google's blocking of telephone calls from consumers who use its Google Voice service to call phone numbers with inflated access charges in certain rural areas. Google admitted doing this, but claimed it was OK because it isn't constrained by the rules that govern carriers.  

In that issue, I've already written that I don't think Google Voice should get a free pass, and it turns out I'm not the only one who feels this way. Larry Downes, a fellow at the Stanford Law School Center of Internet and Society, wrote in his blog:

"There's a simple solution to all this, one that might make a rational conversation about net neutrality possible. And that is to eliminate the distinction between common carriers and everyone else. Hold everyone to the same rules regardless of what information they are transporting-whether voice, video, television, data. Because regardless of who's doing what, these days it's all bits. There is no rational reason to regulate the bits based on who is transporting them. The FCC doesn't even try to justify the distinction anymore. Let's just get rid of it."

I agree with Mr. Downes. The Wall Street Journal took a similar position to what it called "Google's Exceptionalism" in an editorial Oct. 3. It's behind the blasted paywall, but all you need to know is the conclusion:

"The coming convergence will make it increasingly difficult to distinguish among providers of broadband pipes, network services and applications. Once net neutrality is unleashed, it's hard to see how anything connected with the Internet will be safe from regulation."

The FCC is examining AT&T's complaint, and I suspect the group will begin to crack down on the freewheeling way Internet applications operate on the Web. Regulating Web apps is a minefield, but the FCC may feel that in regard to apps like Google Voice, which does execute several features of traditional phone companies, some law and order is required. And that is what is frightening. Once that starts, it's hard to stop.

Google Voice and Skype Threatened

Let's look at the larger issue. What is Google doing with Google Voice beyond funneling calls? Google Voice is intended to disrupt the phone carrier business. It would love to rip this archaic, money-grubbing mess out by its roots and make all calls Web-enabled, all of the time.

Of course, Google Voice doesn't connect users from endpoint to endpoint. However, Google could do this if it used VOIP clients such as Gizmo or Skype as the endpoint bridges.

And that leads us to the next Web-calling nightmare. Skype is a VOIP client, enabling PC-to-PC calls, voice and video conferences and more. In fact, with 481 million users worldwide, explaining what Skype does feels like overkill. eBay, which bought Skype in 2005, plans to sell 65 percent of Skype to Silver Lake and other investors, valuing Skype at $2.75 billion.

Thanks to a simple download, I can log on to my computer, click a button and not only make calls free online, but see the people with whom I'm chatting. It's wonderful. It's also being threatened by a major lawsuit by Skype co-founders Janus Friis and Niklas Zennstrom, who sued Skype, eBay and erstwhile investors in the company for copyright infringement in California district court.

Friis and Zennstrom then sued Michelangelo Volpi, who put together the group of private equity and venture capital funds that agreed this month to buy Skype. They say he misused confidential technical information about Skype and Joost to try to convince investors that he could sidestep a dispute over Skype's use of the software owned by the founders.

Industry observers say these suits are motivated by Friis and Zennstrom's desire to regain Skype for their own purposes; the men have another P2P software company, Joltid. After the first lawsuit versus Skype, Bernstein analyst Jeffrey Lindsay said in a research note:

"We see the lawsuit as self-interested because the owners of Joltid tried to buy Skype themselves earlier this year. We doubt therefore that their objective is to have the business permanently shut down-which we estimate would cost eBay shareholders up to $2.12 per share worst case. Instead we think they are likely to be seeking either a financial settlement or the opportunity to buy the business back themselves at a lower price than Silver Lake, et al are offering."

Why is this a tense time for Skype users? If the court sides with Friis and Zennstrom, it could enjoin Skype from using the core intellectual property that makes Skype calls possible. No IP, no free Web calls.

A lot is at stake here, for Skype, the co-founders and the users. Lindsay said he doubts Friis and Zennstrom are gunning to shut down Skype for good, but Om Malik argues they aren't above such a power play.

So, these are tense times indeed for Google Voice and Skype. Google Voice could be the Web calling app that prompted a major rewrite of Internet regulations, while Skype could be sued into closure. These are worst-case scenarios, but it's better to be prepared than unaware.

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