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Wednesday February 28 03:00 PM EST

Can a peer-to-peer phone network fly? By John Borland CNET News.com

The latest market eyed for peer-to-peer technology is an already beleaguered industry: the phone companies.

A group of high-profile Internet telephony evangelists is building a new service that combines a little of Napster onto an old Internet phone idea in the pursuit of free voice calls. The Free World Dialup project, for now being run under the auspices of consulting and trade show company Pulver.com, aims to create a peer-to-peer network allowing people on different sides of the country to borrow each other’s phone lines over the Net, making any call a local call.

Already in early trials using equipment from Cisco Systems, the project is scheduled to launch initial tests with ordinary callers in late March or early April, using kits that will cost consumers $150.

While serious technical and real-world adoption hurdles remain ahead, the project does mark a new step forward for the peer-to-peer networking model. Where most consumer applications previously have focused on sharing or swapping digitized content such as music or videos, Free World Dialup instead shares communications networks.

That potentially raises a dangerous concept for telephone companies already struggling with falling profits and tectonic shifts in networking technology: If they lose the traffic cop’s role directing voice and data traffic on their networks, they could find themselves with even more pressure on their bottom lines. That alone is enough to draw interest to what company CEO Thomas Anglero calls a first “proof of concept.”

But analysts say no matter how compelling a technology model, Anglero and partner Jeff Pulver are walking into a mine field.

“The logistics of this are absolutely nightmarish,” said Forrester Research analyst Bruce Kasrel after hearing a description of the model. “If the carriers were involved, this might have a chance of working…But this is not something you can do behind the carriers’ back.”

Half Napster, half party line Advocates of routing telephone calls over the Net have been touting their services for years as a way to make end runs around phone companies’ charges, but have gained only limited public traction. Large companies from AT&T on down have taken initial steps toward adopting the technology, but start-up ventures, such as PhoneFree.com, that offer free service have recently begun adding fees, and even Microsoft’s free service has begun limiting use.

The Net-based phone ventures have suffered from a few problems, analysts say. The quality of the connections still is generally comparable to a cell phone at best and can be much worse. Nor do many people want to buy special equipment or learn new software programs just to save a few cents per minute on their phone bills, analysts say.

Despite the slow progress, some pressure still exists in Washington, D.C., to tax Net phone calls the same way as ordinary phone calls, a move that will likely grow stronger if the movement starts posing a more serious competitive threat to the carriers.

The Free World Dialup plans start where other attempts to make Net end runs around carrier toll charges have left off.

The system is built on a network of participants who have broadband Net connections around the world. Each participant hooks up a Net router and a Cisco “gateway” that converts analog telephone signals into Internet-style traffic to their telephone. This kit will initially cost $150 but will likely come down as more people sign up for the service, Anglero said.

When someone in San Francisco wants to call a friend in New York, for example, she would dial her phone just as she ordinarily would. But the call would be routed through the Net to someone else hosting the service in New York, whose equipment would then complete the call to the nearby friend as a local call, free of charge.

“This is really a community that will be working together to make this work,” Anglero said.

In theory, this could be an elegant way of avoiding long-distance charges. In practice, it’s likely to have considerable headaches, analysts say.

Since the system requires that participants allow other people to use their local phone lines, conflicts could arise when the person who actually owns the phone line wants to pick up the phone for a call. Anglero says they’re working on that problem, and are now adding a transitional fix that simply notifies the caller that the connection is about to be broken by the owner of the phone line they’re using.

The limited nature of the network adds in some uncertainty, moreover. A caller might find a network node to borrow in New York, but then find that the system is useless when trying to call Seattle or Paris, because nobody in those cities has signed up for the service.

Nor is the “early adopter” audience who still dominates the broadband subscriber rolls necessarily the right target for this type of service, some analysts note.

“Broadband penetration limits a lot of what kind of customer they can target,” said Aurica Yen, an analyst with the Yankee Group. “These early adopters generally don’t care about saving a few cents on a phone call.”

Sign of things to come? But beyond the Free World Dialup’s immediate proposition to consumers, the service may well point the way to new models of building communications networks. Already technologists are talking about adopting the peer-to-peer model made famous by Napster and Gnutella to new tasks such as content distribution on the Web, a business now led by Akamai Technologies.

Some analysts said Pulver’s communications infrastructure-sharing model could be picked up by carriers that wanted to offer special deals to customers, while looking for ways to route calls beyond their own networks. Local phone companies or competing DSL providers could offer this type of service to compete with long-distance companies, for example.

Analysts warn that as long as it requires consumers to change their calling patterns even a little, it’s not likely to gain much ground, however. The ubiquity and efficiency of a basic phone call is something consumers aren’t willing to give up.

“The Internet telephony community has been trying ideas like this for years, a real power to the people thing,” Kasrel said. “But the whole thing of ‘lets change the way people use the regular telephone’ hasn’t happened at all.”

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