Zennström's voice sounded so faint that after a few minutes, we had to ask the CEO to hang up and start over. He came back on again, loud and clear — demonstrating, perhaps, that communications revolutions come and go, but bad phone connections are eternal.

EE Times: Could you tell us, for the record, what just happened? Why was it so difficult to hear your voice before?

Niklas Zennström: You could hear Kat [Skype's PR person] well, right? I heard her very well, too. I think the problem was with my computer. I have a new computer. This is the first time a Skype call was made from my new computer. It could be that a microphone on my side wasn't working well.

EET: Voice-over-Internet Protocol has a reputation for voice quality that's not as good as on land lines. How can Skype claim better quality-of-service than other VoIP services and regular phone lines?

Zennström: Skype is the only one that uses peer-to-peer technology for voice services. Other VoIP services are using a client-server technology.

Peer-to-peer has been proven to be very powerful for other types of services, such as massive file sharing. What it really means is that the connections between end users are set up directly over the Internet to end users, rather than having to go through a central server somewhere. It [peer-to-peer] takes the shortest route between end users. It can take advantage of full broadband bandwidth, so you don't need to compress the voice as much to get a richer sound experience. That's the reason why it's getting better sound quality. Another benefit is that, since the call is not going through a central server, we don't have any marginal cost for each call.

EET: How much compression is Skype doing to the voice?

Zennström: A normal telephone signal in the digital telephone network is compressed to 56 kilobits per second, which is pretty much the same as the modem line. But we can pretty much take advantage of the broadband network and use a richer sound that doesn't have to be compressed as much.

EET: Have you invented your own codec for this?

Zennström: Codecs are a part of it. But we are using different types of codecs for different types of calls. Some are industry-standard codecs like G.729 and G.711, iLBC and iSAC. We're using different codecs for different circumstances. For instance, if you have a broadband connection, we are using one codec and if you have a narrowband connection, we are using another.

EET: Why aren't others using peer-to-peer technology for VoIP services?

Zennström: Well, because telephony has been around for 125 years, always working with switchers, and switchers are switching calls. That's an easy way to do things. Peer-to-peer is very complex and a much more advanced technology.

EET: What building blocks or basic intellectual property do you have?

Zennström: My group pioneered a peer-to-peer distributed technology in 2000. We invented the technology called supernodes, with a Fast Track peer-to-peer technology used in Kazaa and other filesharing applications. We built a technology that's completely distributed and self-organizing. That hasn't really been done before. Kazaa became the largest file-sharing distributed network, [with] around 4.7 million online users. We've got a lot of experience and know-how from that. Now, this is the third generation we are building. We've been creating this technology by ourselves. This is not something we've licensed from someone else.

EET: Tell us what Skype is up to in terms of a mobile platform.

Zennström: First of all, Skype has always been a mobile service, in a way that you can always bring Skype with you. What we are talking about more now is that Skype is being made available for mobile handsets. Last year we released Skype for Pocket PC, which is a PDA that lets you use [Skype] over a Wi-Fi network. We also made an announcement with Motorola a few months back, to work [together] to make Skype [available] on a few Motorola handsets. We will also make Skype [available] on a few different mobile operating systems. We haven't decided specifically which ones, but that can be things like Windows Mobile, Symbian, Linux and so forth.

What's happening, in broader terms, is that telephones are now becoming computers. Many mobile phones today come with a 200-MHz RISC processor with an open operating system like Windows Mobile or Symbian, which means you can install software on those.

And they have started to be connected to Wi-Fi networks as well as cellular networks. That means that when we deploy Skype on those devices, you can use Skype to make free calls over the Wi-Fi networks you have in your office or in your home.

EET: Is Wi-Fi part of the Motorola deal?

Zennström: We haven't talked specifics about that. But my expectations would be, in the short term, the handsets would be using Wi-Fi. Skype is primarily focused on voice. But the important thing is the combination of voice and other ways to communicate — like text messaging, online presence and things like that.

EET: For Skype to work on a mobile handset, what building blocks do you need and where are they installed — inside the handset, inside the network or both?

Zennström: Nothing goes inside the network. In the old world, services are very much integrated into the network. Now, with the Internet, services are decoupled. [There's a] separation of network and services. Packets will be transported over the Internet. The Internet is fine as it is. But in terms of the handsets, you obviously need to have powerful processors and you need to have Wi-Fi capabilities. We have to develop Skype onto those mobile platforms. That's what we're doing right now.

EET: What are the minimum requirements — such as processing speed — for Skype-capable mobile handsets?

Zennström: It's a work in progress. Today, for PocketPC, the minimum is 400-MHz processing power. I expect for other mobile devices there will be lower requirements.

EET: Let's talk about Skype on DECT cordless phones. What did you have to specifically develop for that?

Zennström: We haven't developed any [DECT] phones. [Rather], we have opened up our application programming interface for our software to the Windows platform, which makes it possible for other companies' software to interact with Skype. We have a Siemens DECT phone and an Olympia DUAL phone, which are very similar. They are connecting a DECT basestation to a computer with a USB connector. On the display of your DECT phone, you can get your Skype contact list and you can make and receive Skype calls as well as traditional PSTN [public switched telephone network] calls. But you are using software that is resident on a Windows computer.

We didn't have to put Skype onto those phones. We opened up our own APIs.

EET: Do you get any revenue from that?

Zennström: Our policy is that we don't disclose contracts we have with other companies.

EET: I am a Skype user, but I have one problem. When I am at home, I don't want to turn on my computer every time I make a phone call.

Zennström: One of the things we've been doing is making sure that we can break out of the computer, or PC, so you can use Skype on other devices, like some of the things we talked about. We definitely think that we will see some cordless phones or dual-mode mobile phones, which don't require you to have a computer on.

EET: It can't be easy to port and optimize to all those embedded operating systems used in mobile handsets.

Zennström: What we have done now is to make Skype available on embedded Linux, which is the platform many device manufacturers use. In fact, we are trying to standardize on embedded Linux as much as possible, because that's probably the most of a standard you can have.

EET: I read an interview that quoted you as saying that "charging for phone calls is something you did in the last century." How do you suggest telephone companies can make money in this century?

Zennström: There are great opportunities for them. It enables a part of my business plan. If they don't provide broadband, nobody could use our software. So we are kind of dependent on each other. We are part of the ecosystem together with them, whether they like it or not.

Take a computer paradigm, in which the hardware infrastructure is now separated from software. Companies like Dell, HP or others are very good at making hardware. There are other companies very good at making software. And they are kind of dependent on each other, because no one wants to buy a computer where there is no software available, while no one wants to buy software which computers are not running on. The same happens in our world. Telephony turns out to be a software application. So, we are dependent on people.

You need to have both connections and applications. Voice and applications like Skype are reasons for people to get broadband. I think, today, we still have less than 50 percent penetration of broadband. That's a great opportunity for phone companies to make money.

EET: So, telephone companies are simply becoming broadband network providers? Is that what you're saying?

Zennström: Well, that's what they are after, right? What they have is really their network. That's something they can take advantage of.

EET: But there is a prevailing notion that you VoIP guys are promoting a "free lunch" expectation throughout the industry. When and where do you actually start making money?

Zennström: Oh, we make a lot of money. Everything isn't free. But something that has a marginal cost of nothing has to be free — just like loading up a Web browser or sending an e-mail is free. Other things are not free. For instance, we are charging for calls to and from the public telephone network. We are charging for voice mail services. We can charge for other value-added services. We have today over 1.2 million paid customers.

EET: You are talking about those who pay for SkypeOut services, which allow users to pay for VoIP calls terminating in the public telephone network. How much money are you making on that?

Zennström: Our policy is that we don't disclose financials.

EET: Tell us about other value-added services, beyond SkypeOut.

Zennström: The SkypeIn service is something we now have in beta version in many countries. It allows people to make calls or receive calls from public telephone networks onto Skype. It's very good because it gives people added benefits. For instance, if you have a family with teenage kids, everyone can have a private telephone number. When you are traveling, if you bring your laptop with you, people can call you and reach you. So if you travel a lot internationally, you get a lot of high roaming charges. Using Skype, you bring your number with you and there will be no more roaming.

The other benefit is the voice mail service — that we are charging for. It's possible to reach people even if they are not online or on their computer. Voice mail comes free with SkypeIn. You can also buy voice mail separately.

EET: Is video the next step?

Zennström: Video is certainly something we are working on right now.

EET: Are we talking about video telephony or something like mobile broadcast?

Zennström: No, no. Video calls. One-to-one: People can call each other and see each other.

EET: Aren't you interested in mobile video broadcast? That seems very hot and interesting.

Zennström: Sure, there are a lot of interesting things. But Skype is a person-to-person communication service. We believe in multiple forms of communication, or multimode communications: voice, text messaging, video.

EET: On another front, where does the music industry's lawsuit against Kazaa stand today? Is it still going on?

Zennström: Yes.

EET: How does that affect your business and you personally?

Zennström: Not a whole lot. It is something in the background and we don't spend a whole lot of time on that. Skype has nothing to do with all this record industry stuff. Me personally, and others, we are still involved in this mess, because there are a lot of lawyers who make a lot of money and try to continue all the litigation, [although] they've been losing.

Niklas Zennström
Born: 1966 in Sweden