updated 7/27/2004 6:57:13 PM ET 2004-07-27T22:57:13

The creators of Skype, a program that allows computer users to call each other online for free anywhere in the world, has unveiled a new version of the software that enables PC users to dial landlines and cell phones worldwide.

The new feature, dubbed SkypeOut, which was announced by the Swedish company earlier this year, is designed to give privately held Skype a better chance to compete with traditional telecoms by letting consumers make calls often for a fraction of the price of what national phone companies charge.

"Skype is helping consumers everywhere move beyond the limitations of last century's telecommunications tools to experience new value and quality," said Niclas Zennstroem, the company's co-founder and chief executive. "In the long term, people will be using the Internet to make calls because everyone is one the Internet at the end of the day."

The basic program, Skype 1.0, is offered as a free download over the Internet. It enables people to use their computers as telephones to call others equipped with Skype software. Techies call the technology VoIP, for Voice over Internet Protocol.

Unlike a traditional phone call where sound is converted into electronic signals that traverse an elaborate network of switches in a dedicated circuit, a VoIP conversation is converted to packets of data that move rapidly all over the Internet or in private networks, just like e-mails or Web pages, though voice packets get priority status.

The packets get reassembled and converted to sound on the other end of the call.

A similar version, Skype Plus, is planned for later this year. It will let people collect voice mail and receive calls from regular telephones.

But SkypeOut goes a step farther: Skype computers can call regular phones and cell phones.

Users set up an account, a minimum of $12.15, and can start dialing landlines or mobile phones.

"You are using your credit card to prepay for the calls," Zennstroem said.

Skype has its limits which analysts said could hamper its appeal.

Users can't receive calls dialed from landlines or cell phones. And don't think about dialing emergency services numbers. Those won't be connected.

Mark Main, a senior analyst with Ovum in London, said the pricing is competitive, but not the best outright.

Understanding the rates
"The rates are fairly competitive, but you can nearly match them with more convenient solutions," he said, referring to low-cost calling cards that provide chunks of time for a set price. In Sweden, for example, a 960-minute phone card costs $13.20 and can be used to dial anywhere in western Europe and North America.

For example, a Skype user in Spain would pay 2 cents a minute to call the United States or Britain, or 24 cents a minute to call a cell phone there. A five-minute call to a British landline using SkypeOut would be about 9 cents.

Using a traditional landline in Madrid, the same call would be about $3.64.

But other rates aren't cheap. Calling a landline in Afghanistan is nearly 35 cents a minute, while a call to Diego Garcia in the Indian Ocean would be $1.34 a minute.

For someone in Italy, where a five-minute phone call to the United States and Britain is about $1.21, the same cost on Skype would be 9 cents.

The company has a global calling plan geared toward 22 countries, mostly western Europe, Australia, Canada, the United States, parts of Mexico and Chile. The flat rate is approximately 2 cents for those 22 countries. Outside the rate plan, pricing varies by country and, the company warned, is subject to change.

"Skype to me is still a bit of novelty, more people are trying it out of curiosity," said Main, the London analyst, adding that the service appeals to casual users and not to corporate users.

"For people looking for better reliability and quality, they'll be prepared to pay a little bit more for something that's consistently better," he said.

Zennstroem said the company hopes users will take to SkypeOut.

"We now have nearly 8 million registered users and our objective was to have more than 10 million by the end of 2004," he told The Associated Press. "We hope that up to 5 percent of these will be using SkypeOut, but it's too early for us to make any forecasts."

The service provides simple dial options including a dial-pad and an add-a-telephone number-contact tool.

Customers can access their accounts with a click of the mouse to reach their password protected personal account page, including call history and credit information.

Making Skype-to-Skype calls are still free, the company spokesman said.

"Skype 1.0 with SkypeOut is an unmatched universal offering," Zennstroem said. "Skype software will continue to innovate in response to our users' needs and for improving their connections with friends, families, colleagues and services."

Like previous versions of Skype, 7.7 million users have downloaded the program since it was unveiled in August 2003, version 1.0 works on any Windows 2000 or XP-powered PC.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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