Internet phone company's outage not expected to trigger defections to traditional lines

~ Skype was offline for nearly two days last week.

FRANKFURT, Germany -- When the Internet phone company Skype was offline Aug. 16 and 17, Tim Legrand was frustrated and inconvenienced. But he has no plans to switch back to a traditional telephone line.

The Birmingham, England, graduate student, who ditched his old phone service a year ago, says Skype's low cost and flexibility outweigh the headaches caused by the outage.

He's not alone. Although millions of users were angry, analysts say the outage is unlikely to cause customers to hang up on the service.

If anything, the reaction may be a sign that VoIP -- or Voice over Internet Protocol -- is coming of age, said Richard Levick, chief executive of Levick Strategic Communications, which provides crisis guidance for companies.

"The attention paid to these outages shows that these technologies have been accepted," he said. "As such, this outage will no more drive potential users away than a telephone outage in 1955 would have driven people back to using carrier pigeons."

Skype, which was bought in 2005 by online auctioneer eBay Inc. for $2.1 billion, has a loyal following, with about 220 million total users worldwide. It has proven popular with everyone from stay-at-home parents to students to executives seeking to trim costs for long-distance phone calls.

Users can talk with other Skype users on their PCs for free. For pennies per minute, they can make calls to or receive them from cell phones and regular phones.

Skype's versatility, Legrand said, "meant that I could safely give up paying for a land line." He uses his mobile phone for about 10 minutes a day but spends "an hour a day talking on Skype" to his family and girlfriend.

"Although at the time it was incredibly inconvenient to suddenly lose my connection, I'm not thinking about using a different Internet telephony," said Legrand, a Skype user since 1995.

Skype blamed the nearly 48-hour outage, which started Aug. 16, on a software bug that was exacerbated by PC users restarting their machines after installing a routine Windows patch from Microsoft Corp.

For other users, outrage wasn't focused on the outage itself but on Skype's response.

It took more than a day for Skype to dispel speculation that the problem was caused by hackers, said Stefan Topfer, chief executive of WinWeb, a London-based provider of software for small businesses that includes Skype in its bundles.

Several e-mails he sent to the company during the outage got no response while his own customers were asking him whether it was safe to use the service.

"I don't think the outage itself was a problem," he said. "I think the way it was handled was a problem."

Still, Topfer will continue to use the service and recommend it to clients.

"We very often make too much of these individual failures," he said. "My firm believes today that Skype's network is more resilient than it was last week."

In its official blog, Skype said the bug "has been squashed." Neither the company nor its parent would make a spokesperson available to comment on how it handled the crisis, though Skype did offer a week of free service to its paying customers.

The underlying technology -- sending voice calls over the Internet -- also isn't expected to suffer as a result of Skype's outage or other recent problems involving VoIP providers.

One company, SunRocket, abruptly went out of business last month, leaving more than 200,000 customers scrambling for another service. Vonage Holdings Corp., an Internet telephony pioneer, is struggling financially and legally.

In the United States, the number of Internet phone subscribers is estimated at slightly more than 14 million and growing, according to the research firm TeleGeography.

About 6.5 million consumer VoIP lines were in place in Europe at the beginning of 2006 -- a figure that TeleGeography expects to rise to nearly 30 million by the end of this year.

But it's not just standalone companies driving the growth. Cable television operators use the same technology to carry calls as are traditional telephone companies that offer VoIP service.

Skype's challenge -- as well as that of other standalone providers -- is to respond to crises like its larger competitors, said Levick.

"The lesson in these outages is that the marketplace expects the same level of responsibility and accountability that it demands from a public utility," he said.

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On the Net:

http://www.skype.com

http://www.winweb.com

http://www.vonage.com