Voice-over-internet technology will slash phone bills once the development of broadband networks allows its introduction, writes Jamie Smyth, Technology Reporter

A revolution is sweeping through the telecommunications industry, changing the way we make and receive phone calls and radically reducing call prices.

VOIP (voice over internet protocol) technology is already being introduced by Irish business, with Primark and Bank of Ireland installing it recently in an effort to cut their phone bills.

In the US it has become a huge business. Telecoms company Vonage has 350,000 VOIP lines in service. The investment bank Merrill Lynch is predicting there will be 18.4 million VOIP customers in the US in three years.

Japan is also a huge market for VOIP calls because of the huge number of broadband subscribers. Figures supplied by the Commission for Communications Regulation (ComReg) suggest that 200 internet service providers are already reselling VOIP services and 5.32 million residential customers have signed up.

As broadband networks gradually roll out across the State, it is now a hot topic for Irish consumers too, particularly early adapters of new technology.

VOIP services use the internet to carry call traffic rather than traditional phone systems (known as PSTN networks). As it costs nothing to transmit data over the internet, calls between two VOIP users are free, says Mr Enda Hardiman, director of the Irish-based telecoms consultancy Hardiman Communications.

"The VOIP system works by chopping the voice signal up into digital packets that are transmitted over the Web, alongside data packages carrying emails and other traffic," he says.

The quality of VOIP calls can be better than calls made over the traditional phone network, particularly when it is a managed service set up by a business. But for consumers using the public internet, broadband speeds of at least 100 kilobytes per second are required to get a decent service.

There can also be quality-of-service issues for calls made over the public internet, depending on the volume of traffic as voice packets compete with data for priority, says Mr Hardiman, who advises VOIP users not to download large amounts of data on their PC while making a call.

Unlike standard telephone systems which can be monitored by national regulators for quality of service, VOIP is almost impossible to regulate. Indeed, many services will not offer the standard 112 emergency number connection or even wire tapping facilities for police forces.

"Our approach is to open the door and let the guys get into the market," says Mr David Gunning, the ComReg director of market framework, who is in charge of developing the VOIP market. "ComReg will be taking a light -touch approach to regulating it."

In fairness, national regulators have little choice as signing up for a VOIP service is so simple.

All consumers need to start making decent-quality VOIP calls is to have a broadband connection and download some specialised software onto their home computer. The most popular software packages are Skype, Net2Phone and Go2Call, which can be downloaded freely from the Web.

Skype uses a peer-to-peer software model in a similar fashion to Napster, which essentially turns each user's computer into a mini-router that enables other Skype users to telephone them.

Consumers can then attach a handset onto the USB port on their PC to make calls. Because it is so easy to set up, Skype (and a range of other VOIP providers) is proving increasingly popular.

"Skype has more than 49,000 registered users throughout Ireland," says Mr Daniel Twigg, Skype marketing manager. "We have more than 26 million registered users, and more than 130,000 new users per day, compared to 90,000 per day in October and 30,000 in March '03.

"This week Skype had more than two million simultaneous users online for the first time and Skype software has been downloaded more than 71 million times. Almost five billion minutes of Skype calls have been made so far."

Skype works best when users telephone people who are also part of the Skype network, enabling them to enjoy free calls by bypassing the PSTN network.

But it also offers discounts for calls made to regular fixed-line telephone, because callers only pay for that part of the call which emerges on the regular network at the local exchange close to the destination of the user.

Skype has set up a special service called "Skype-out" to offer this type of service to its community of users. To date, 800,000 people have signed up.

The rapid uptake of Skype's software, particularly among tech-savvy consumers, threatens to erode the profits enjoyed by traditional telecoms firms.

But up until now, consumer VOIP services have not enabled users to receive calls from traditional fixed line or mobile networks.

But over the next few months that will change. Nine firms have applied to ComReg to offer their customers telephone numbers that will enable them to make and receive internet phone calls.

The usual suspects - Eircom, Esat BT, Smart Telecom, MCI, Colt and Tele 2 - have been assigned VOIP numbers. But there are also several innovative start-ups breaking into the telecoms market through VOIP.

BlueFace Limited, Wireless projects and Skytel Networks have been assigned VOIP numbers over the past few weeks by ComReg. Several other firms are also about to apply for numbers.

"We think we are the first VOIP company in the Republic to offer consumers a service that enables them to receive calls using their ordinary phone numbers," says Mr Aaron Clauson, co-founder of Blueface.

Blueface has built an interface system using primarily open-source software that sits in Telecity's data centre in Citywest. It acts as a link between the traditional PSTN world of telecommunications and the Web. This means that ordinary calls to Blueface's subscribers are transferred onto the VOIP network via the servers based at the data centre.

"Basically we act as a gateway between the old and new telecoms worlds," says Mr Clauson. "People's VOIP numbers sit on the server, which means we can also direct them to whatever devices they are using at a certain time, either a mobile or a phone linked to their PC."

Blueface has signed up 200 customers over the past four months without marketing it aggressively. It is proving particularly popular for subscribers to broadband through NTL or one of the wireless internet providers, such as Irish Broadband or Leap Broadband.

"We have found that many people are interested in VOIP if they can get rid of their Eircom landline and save on the line rental charges worth €25," says Mr Clausen.

Blueface is offering two VOIP packages to its subscribers, which offer free calls to other VOIP users worldwide.

Both services offer bundles of call minutes to ordinary phone numbers in the Republic and abroad for either €19.99 or €9.99.

ComReg has made normal geographic numbers available for VOIP and a new number range with the prefix (076). Consultations between Eircom and other operators suggest that calls made from a 076 number to regular lines will be charged at local call rates, says Mr Clausen.

For those consumers that are not early users of technology and can't be bothered fiddling with modems and downloading software from the web, the big telecoms firms are likely to begin offering VOIP later this year.

Esat BT said last week it would launch a VOIP service for consumers by this summer. This will probably be bundled with the firm's existing broadband service. Eircom, which has the most to lose from the roll-out of a technology enabling free calls, said yesterday that it would introduce VOIP services by May. But it has not revealed its plan for consumers using its i-stream service.

But as broadband rolls out across the country over the next few years, VOIP is sure to follow. After all, why would you pay for international calls when you can make them for free?