Is Skype just hype, or does it really mean the end of phone bills? As Bill Gates spends [euro]6bn on a company that offers free calls.(Features)

Byline: by Jonathan Margolis

WHEN transatlantic telephone calls first became available in the Twenties, a threeminute call to New York cost close to [pounds sterling]10 -- almost a month's wages for the average working man.

Today, the same call can be made for nothing. You can stay on the line for a week if you like. And not only will the sound quality be as good as if the other party was sitting beside you.

Such endless, free global communication has become possible because of Skype, the oddlynamed computer service which software giant Microsoft bought last week for more than [euro]6billion.

Launched in 2003, this free and simple-to-use computer programme turns any broadbandconnected computer into a phone for both speech and video calls to hundreds of millions of other Skype users.

It works because even basic broadband internet connections can carry a vast amount of information ('data') and a Skype call (technically known as VOIP -- Voice Over Internet Protocol) piggy-backs on broadband.

You must download Skype (free, of course) from skype.com to your computer. You then choose a Skype name for yourself -- your name or nickname, or a number if you prefer -- and you're a Skype user.

Not a euro need change hands. Simply type in a normal phone number or another Skype user's name and the computer will dial for you. The microphones on your computer should pick up your voice, and the person you're chatting to can be heard through its speakers. You can even dial normal phones and mobiles worldwide from Skype -- not for free, but for a tiny charge compared with normal phone charges.

There are now other versions of Skype, like Apple's high definition FaceTime. But, just as the Hoover brand name is synonymous with vacuuming, Skype-ing has become the catch-all word for VOIP calling. The only complaint anyone has about Skype is that the calls sometimes 'drop out' -- jargon for being cut off -- and you need to interrupt a conversation to redial. But since you're paying nothing, you can hardly demand your money back. Relatives living abroad, students travelling, parents on business trips reading bedtime stories to their children thousands of kilometres away ... everyone is doing it.

In fact, people are getting blase about it. I Skyped my niece when she moved to Australia last year. We chatted about this and that, then she took me on a tour of her new house by carrying her laptop from room to room. Some time into the call, she said: 'Is there anything specific, uncle? I kind of have a few things to do.' As a middle-aged man, I was still chortling about the novelty of being given a (free!) video tour of her home on the other side of the world, while Helen was unfazed by the technology; she can barely remember a world without it.

Businesses are using Skype massively, too, slashing communications costs to almost zero. It's like a window to the other side of the world -- except, of course, nobody under 30 considers it a wonder at all. It's just normal.

All very well, you say, but somebody must be paying for such an extraordinary service. But there is free email from dozens of services like Hotmail and Gmail, free web searching from Google and other search sites, free social networking from Facebook and Twitter, not to mention free news from media websites all over the world. The internet is based, it is often said, on a peculiar new 'economics of free'.But Skype somehow seems almost more ridiculously, disturbingly free than other sites.

How can something like that possibly work? And why would Microsoft, one of the most financially sharp companies in the world, spend more than [euro]6billion on a company which, despite having almost a billion customers, still has never made a farthing, which indeed, lost more than [euro]4.5million last year? Would Microsoft like to pay me a fat sum for my overdraft? Welcome to the Mickey Mouse world of online businesses, the only sphere other than public healthcare where you can have a brand which leaks cash like a colander -- and nobody appears to mind. In fact, in a weird way, it's a sort of badge of honour.

SKYPE'S previous owners, the auction site eBay, tried doggedly to get it to make money, but to no avail. Some believe Microsoft is planning for a future in which consumers use a vast range of services on mobile phones or lightweight tablet computers and that Skype's video-calls will be an important part of that. But it is also probable that Bill Gates's company plans to make Skype a free bolt-on to their Windows operating system to tempt back the millions of people who have defected in recent years to Apple computers. If that happens, Skype might actually become unavailable on Apple computers.

Many fear Microsoft's corporate mentality will ruin Skype, and that in an attempt to make it pay, Gates's men will destroy the simplicity which has made it so popular. Either that or they will plaster the beautifully clean and simple site with advertisements.

There's another possibility, too. Image is all in the internet world, and Skype has a cool, untainted image. It could be that the human calculators at Microsoft have worked out that [euro]6billion is a small price to pay for the global public to love you -- and to think of your brand every time they dial up a loved one.