Times Online

January 24, 2005

Google gears up for a free-phone challenge to BT

By Elizabeth Judge, Telecoms Correspondent

GOOGLE revolutionised the internet. Now it is hoping to do the same with our phones.

The company behind the US-based internet search engine looks set to launch a free telephone service that links users via a broadband internet connection using a headset and home computer.

The technology that will enable Google to move in on the market has been around for some time. Software by the London-based company, Skype, has been downloaded nearly 54 million times around the world but no large telecommunication firms have properly exploited it.

BT, which connects seven out of ten British households, has developed its own internet-telephone service. However, the telephone giant, which has the most to lose if the new technology takes off, has been reluctant to promote it heavily.

Julian Hewitt, senior partner at Ovum, a telecoms consultancy, said: “From a telecoms perspective there is a big appeal in the fact that Google is a search operation — and of course the Google brand is a huge draw.”

Mr Hewitt said that a Google telephone service could be made to link with the Google search engine, which already conducts half of all internet inquiries made around the world. A surfer looking for a clothes retailer could simply find the web site and click on the screen to speak to the shop.

The basic cost of making calls across the internet is almost nil. The real cost is in developing the software; after that, the service exploits available internet capacity. However, charging does become necessary to link internet calls with the traditional phone network.

In addition, the sound quality of calls across the internet can be poor and the connections can be less reliable.

A recent job advert by Google’s on its website calls for a “strategic negotiator” to help the company to provide a “global backbone network” — a high-capacity international infrastructure.

By investing in capacity, Google could circumvent the problems of quality and reliability and guarantee better service.

Although Google is reluctant to talk about its plans, the logical use of such a network would be to help to support a new telephone service. The company would buy capacity cheaply, by taking up slack capacity left behind when the internet bubble collapsed in 2001.

Around the world, thousands of miles of fibre-optic cable remain unused because the amount of speculative development vastly exceeded demand. Such capacity would be available at rock-bottom prices today.

Elsewhere in the world, using the internet to make phone calls has caught on more quickly. In Japan 10 per cent of households already use the so-called “voice over internet protocol” and an internet service offered by Softband has 4.4 million subscribers. Its growth has depressed revenues of the local telecom group, NTT.

In the US, a company called Vonage offers customers unlimited calls each month for as little as $24 (less than £13).

Big companies and multinationals that make huge numbers of long-distance calls are also increasingly switching to internet calls to try to slash their bills.

Google, which was founded in 1996, built its business from scratch by offering a fast, reliable and free internet search. It gradually transformed into a highly profitable company by offering commercial services, including sponsored web links.

Its most up-to-date figures show that, in the first nine months of 2004, Google made a profit of $195 million on revenues of $2.1 billion.

START OF THE BIG SEARCH

·                       Stanford University graduate students Sergey Brin and Larry Page began working on Google’s search-engine technology in 1996 when they were in their early twenties

·                       They tried to find a buyer for their work but were forced to set up their own company in 1998 because nobody was interested

·                       Two years later Google became the biggest search engine on the web

·                       Google was forced to go public during 2004, so that some of its founding investors could make a profit. The company raised $26 million; its initial market value at float was one thousand times greater

·                       The company’s motto is “Don’t Be Evil”