Of course, the critical question behind all this buzz is simply: Is there a viable business case behind what Skype and other P2P advocates are doing? And is that case sound enough to alter the long-term prospects of carriers offering traditional circuit telephony services?

"In the long view, let us say 10 or 20 years out, Skype probably represents the direction in which the industry is headed," claims Dan Freedman, CEO of Jasomi Networks, a major manufacturer of border session controllers for VoIP service providers. "I could see voice services evolving to the point where there are providers of a bit pipe to the Internet and then naming services that locate the individual being called, and that's about it. In that context, peer-to-peer architectures work well, and they certainly pose a threat to incumbent voice carriers."

What Freedman, Zennstrom and other P2P proponents appear to advocate is a network without most of the appurtenances that characterize all legacy services operating today, whether traditional circuit or the newer VoIP models. P2P technology requires no infrastructure and virtually no capital investment. Instead, users (and Skype has 750,000 of these every day) share computer resources to create the network and manage the traffic flow.

Their network, of course, comes without any significant amount of telecom "big iron," and thus is also without the built-in cap ex and op ex costs that have restricted voice services primarily to the same incumbents providing them over the course of the last hundred years. It's a network that, by some accounts, promises to provide the basis for a truly competitive marketplace for voice services. Others are less sanguine: They see P2P obliterating the profit potential for traditional voice.

VANISHING INFRASTRUCTURE

For those of who have watched VoIP from the outset, Skype evokes a strong sense of deja vu. Talk of radical disruption and the obsolescence of conventional circuit voice was much in the air back in 1994 when the first VoIP software platforms appeared in the marketplace. If anything, the fervor of new-economy types in proclaiming the death of circuit was even greater then.

This, of course, was not to be. True, such early VoIP software enabled the caller to bypass class 4 tandem switches entirely and to disguise the call as best-effort data traffic, thereby eliminating the requirement for conventional voice switches. But unfortunately, the recipient had to be online to receive the call. There were no ring-through mechanisms. So calls had to be pre-arranged rather like traditional conference calls, a deficiency that greatly limited the practicality of early VoIP. Nor was there any means for controlling latency and jitter. Predictably voice quality was indifferent to poor.

Such early VoIP platforms were arguably peer-to-peer. Certainly they shared with Skype and its ilk (such as FireFly, VoicePulse, and AOL Voice Chat) the requirement that the conversants already share a computer connection prior to the initiation of voice communication. But Skype--if the claims of its developers are to be believed--goes much further and posits a number of mechanisms by which the traditional PSTN might be truly challenged.

SKYPE'S BENEFITS

With a Skype-enabled telephone instrument such as Skype's own branded phone or the recently introduced Gigaset from Siemens, ring-through is no longer a problem. The phone maintains an always-on Internet connection, and provides a ringtone when a call is initiated. And Skype claims other benefits as well.

According to the company's literature, voice quality exceeds circuit toll quality because of the wider audio frequency range of the transmission--20Hz to 20kHz, as opposed to 300Hz to 3kHz for conventional digital vocoders. Skype also maintains that its software distributes a sophisticated routing algorithm throughout the network, an algorithm residing on every individual computer with downloaded Skype software. Such software purportedly selects optimal paths through the Internet for each voice data stream, obviating the need for carrier based QoS or for any specialized voice servers or multimedia-friendly routers.

The last claim is crucial. What the peer-to-peer contingent is saying is that the only network elements needed are the core routers (which would reside at the network exchange points in any event), and that special IP QoS provisions such as DiffServ and RSVP are unnecessary. In this context, the only unique benefit a "big iron" voice carrier can provide is a gateway connection to the PSTN. Consequently, once peer-to-peer software becomes ubiquitous, the need for such gateways will disappear, as will the requirement for ancillary network elements such as softswitches and border session controllers.

Once a sufficient population of softphones enters the marketplace, P2P VoIP software could be made generally available at various secure Websites and either sold for a nominal sum or distributed as freeware. Subscriber software would in effect be the only entity required to allow the network to operate. The sole function of the carrier would be to provide gateway services--for as long as the circuit switched voice network survived. After that voice might become a no-extra-cost application run over one's Internet connection.

Presumably in a network where all subscriber terminals were SIP-enabled, a similar state of affairs would be prevail, though the SIP protocol contains no routing provisions that would ensure optimal QoS. Skype and certain rivals such as Peerio, insofar as they purport to disperse complex control functions pervasively through the network, would appear to be unique, and uniquely positioned for a frontal assault upon traditional voice telephony.

SKEPTICAL VIEW

However, not everyone buys into this voice model. Dimitry Goroshevsky, president of the Paris based Popular Telephony (which developed Peerio) says Skype isn't true P2P and isn't really all that revolutionary compared to traditional VoIP.

"Skype uses what is actually a super-peer architecture, not true peer- to-peer," says Goroshevsky. "Control functions actually reside on a ring of servers, not on individual subscriber terminals. Just run a network analyzer, and you'll see that all the packets are going to the same destination, which happens to be a Skype server.

"There's nothing radically new about it, and it provides no real benefits over VoIP systems based on specialized hardware. In any event, Skype will crash in time. Their software won't work with the next generation of firewalls."

Others believe that even if Skype doesn't represent a technology revolution, it does seem a marketing one, with the potential to disrupt the voice industry just as easily as Kazaa trounced the traditional music busness.

"Skype is new in a marketing sense at the very least," says Jasomi's Freedman. "There have been a lot of these computer-to-computer VoIP programs around in the past, but this is the only one to have gained widespread acceptance. It works better than the others, the call quality is better, it's easier to use, and it works behind firewalls."

Adds Freedman," It's the harbinger of things to come, and you'll find that the popular voice chat services such as MSN Messenger and Yahoo Messenger will quickly begin to emulate Skype's unique features. Within a few months this is going to be pervasive."

Jim Greenway, vice president of marketing for Kagoor, another VoIP border session controller company, is skeptical, especially about the scaleability of the P2P model.

"There were a whole slew of features in traditional circuit switches representing millions of lines of code, and there are a whole slew of features in the leading session controllers," he says. "What the peer-to-peer guys are doing won't scale unless they create their own session controllers. They just can't emulate this functionality on fully distributed architecture."

And since the SkypeOut service charges a minute-based fee to route calls through the PSTN, Greenway wonders what the benefit really is over conventional VoIP service.

Mark Kaish, vice president of next- generation solutions, residence VoIP for Bell South, has another concern about P2P: Quality,

"We've tested peer-to-peer approaches, and they don't do what they claim to do," he notes. "They cannot eliminate QoS problems because they use the public Internet, and there are no agreements in place for mandating QoS across networks. For the business customer we serve they're clearly inadequate."

Lydia Leong, principal analyst for the Gartner Group, also believes P2P won't end up replacing PSTN service anytime soon. "Where we see it gaining in importance is in converged applications where voice is added to some other application," she says. "An example might be multiplayer online gaming, where the players may wish to converse with one another during play."

Kevin Mitchell, directing analyst for service provider voice and data at Infonetics, also sees peer-to-peer services occupying a different niche than traditional circuit or even current-generation VoIP.

"I see them being distinct from managed services, and more like instant messaging. I don't see them as truly disruptive or in any way threatening to the ILECs. I think something like Vonage represents a much greater threat, though I believe IP voice still accounts for merely a fraction of 1% of total voice traffic in the local loop."

Will Stofega, senior analyst, VoIP services for IDC, believes P2P offers a weak business case. "There clearly isn't much of a case for the original Skype, other than selling Skype-enabled phones, which was their first business," Stofega says. "But now they've set themselves up as a commercial service provider with their SkypeOut service. As a broadband consumer product, it's pretty limited in my opinion."

The broader implications of peer-to-peer

Skype is not the only firm offering a voice service based, however loosely, upon a peer-to-peer architecture. Free World Dialup provides a similar model, and others will follow. But Skype garnered most of the publicity, since its voice software followed hard on the heels of another software coup, the multimedia file sharing platform known as Kazaa. That currently runs on tens of millions of computers around the world, far more than the aggregate of all the competing platforms such as Napster, Morpheus, and Grokster. If P2P file sharing shook the music and motion picture content industry, why couldn't it similarly impact traditional telecommunications?

"Peer-to-peer eventually will transform telecommunications and also database software, grid computing, more applications than you can possibly imagine," says Popular Telephony's Dimitry Goroshevsky. "But not the way that Skype or Nimcat or Digem does it. It has to be true peer-to-peer, and it can't rely on super peers. Those have the same inherent vulnerabilities as policy servers. But if the control software is truly dispersed, which is the case with our own Peerio platform, then the cost of the service becomes vastly lower.

"Right now peer-to-peer is mostly confined to PBXs in telecom, and there I can tell you that port cost can drop from a low of $500 for a conventional IP PBX to less than $20 for a peer-to-peer implementation."

And if that happens in public networks?

"Voice has become an increasingly commoditized business, and VoIP is accelerating that trend," says Jasomi's Dan Freedman. "Peer-to-peer would further accelerate it, and would disintermediate the phone companies. Access lines would become a major component of infrastructure, not network elements."

So how does a company distinguish itself in terms of service offerings rather than simple provisioning of access? Freedman isn't sure, but he foresees a scenario where "several incumbents go bankrupt" and consolidation follows.

Wouldn't it be ironic, he asks, if a technology intended to ensure competition only ensures oligopoly?