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My transatlantic call with my little sister at Smith College in Northampton, MA, starts with her recurring complaint about the campus food. This week, it seems, there’s a shortage of fresh fruit. Normally, as the long-distance seconds tick by, I’d be tempted to ask her about more serious issues. But this time I’m happy to listen: our hour-long call, placed over the Internet from my computer in Riga, Latvia, to her computer in Northampton, is using a free program called Skype and is costing us nothing.

When I start up Skype to call my sister, the software links my PC with the computers of other Skype users who also happen to be online. In this case, one of them is my sister, 6,500 kilometers away. Our voices are broken into digital packets that hopscotch from computer to computer until they reach their destinations, where they’re reassembled into astonishingly clear audio.

The peer-to-peer strategy used by Skype is very similar to that of the Internet file-sharing systems, such as the original Napster, that have become the bane of the music industry. Indeed, the creators of Skype-Niklas Zennstrm of Sweden, Janus Friis of Denmark, and a set of expert programmers in Estonia and elsewhere-are largely the same team that unleashed Kazaa, the music-sharing program perhaps most loved by music swappers and most reviled by music corporations. So it’s only natural that Zennstrm and Friis, who have given away more than 10 million copies of their new software to users in more than 170 countries since launching Luxembourg-based Skype Technologies in August 2003, would be anointed by some as Davids aiming their high-tech slingshot at the Goliaths of the telecom world.

But in reality, the two entrepreneurs and their programmers are hardly radicals out to destroy the telephone as an instrument of profit. Despite their nonconformist markings, they’re simply ambitious businessmen intent on changing the economics of making a phone call. Other companies such as Net2Phone have been routing calls over the Internet for years (see “The Internet Phone Booth”), but most such services still depend on centralized computer servers to direct calls and track usage and must charge accordingly. Skype’s leaders, on the other hand, believe they can afford to give away their software and let users call each other free, confident that customers will pay for the additional services they plan to introduce, such as voice mail. And there is another reason for their generosity: they have no complicated infrastructure to build and maintain. They simply use the Internet.

So far Skype has about 4.5 million registered users, but its ability to expand its base of customers indefinitely simply by handing out more copies of its software has many in the information technology and investment communities watching it closely. In March, Skype raised $18.8 million in venture funding from investors such as Silicon Valley’s Draper Fisher Jurvetson and Geneva, Switzerland-based Index Ventures. German electronics giant Siemens says it will launch a line of cordless phones in September that incorporate Skype’s software, and wireless Microsoft Pocket PC personal digital assistants can now run a stripped-down version of the software that turns them into mobile Skype phones. Both developments untether Skype users from their PCs.

No one expects that free peer-to-peer telephone service will eat into traditional calling as rapidly as software like Kazaa has deflated the retail music business. For one thing, most current Internet calling technology still requires users to buy and install special modems and adaptors. But Internet telephony will catch on “quicker than most people realize,” predicts Randolph May, senior fellow and director of communications policy studies at the Progress and Freedom Foundation, a Washington, DC, think tank focused on the digital revolution. Indeed, once consumers have experienced the surprising sound quality of Internet voice calls, not to mention the pleasure of getting no bills-or very low ones-they may find that old-fashioned dial tone harder to listen to.

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