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Since online auctioneer eBay agreed to purchase Voice over Internet Protocol (VoIP) provider Skype Technologies for $2.6 billion in cash plus eBay stock, industry analysts have been wondering why. Skype, which allows Internet users wth broadband connections to talk from computer-to-computer anywhere in the world for free, and from computer-to-phone at a deep discount from any rates offered by traditional telecommunications companies, is an example of how VoIP, also called IP telephony or Internet telephony, is revolutionising the telecommunications industry. The focus in the news has been on why an online auctioneer would want to pay this much for a telephony company. Equally interesting are the questions for regulatory policy.

VoIP is an example of traditional industry lines blurring, in this case those of telecommunications and data networks. VoIP uses Internet Protocol (IP) networks to transmit voice data using the packet-switching technology employed for Internet transmissions, rather than the dedicated circuit-switching networks traditionally used for telecommunications. The cost of speaking to another computer user on a VoIP system is, potentially, completely captured by the cost of connecting to the Internet. VoIP has already gone mainstream; many businesses (including my own employer) have replaced traditional telephones with IP phones.

According to Skype, the reason for its own success is in the combination of second-generation P2P technology and a minimum of centralising technology, which allows it to maintain high quality transmissions. With VoIP, quality issues generally focus on minimising the time-lag, or latency, in a VoIP connection.

The focus in the news has been on what synergies, if any, exist between eBay and Skype, with much puzzlement being expressed at the reasons for the acquisition. The question of whether eBay would have been better off building its own VoIP capabilities to allow auction participants to communicate with each other, rather than shelling out over $2.6 billion for Skype’s, is an interesting question. So is the question as to whether online auction participants (particularly those buying big-ticket items, such as cars) need to be able to communicate in this way.

What is also interesting is what this kind of convergence will mean for regulation of the telecommunications industry and the Internet.

As has been commented elsewhere, the linking of Internet with traditional circuit-switching networks (ie, calling from your computer to a traditional telephone, called “skyping out” by Skype) may subject VoIP services to the same regulations that constrain traditional telecommunications businesses — and add costs. The same does not seem to be true of computer-to-computer conversations, which appear to remain regulated by laws applying to Internet transmissions rather than telecommunications laws.

Assuming that this is correct, it begs the following question: why are Internet telephony communications any different from other real-time communications made over the Internet? Instant messenger programs, allowing users to type messages to one another in real time, comes to mind. What is it about voice communications, digitised and transmitted in the same way as other Internet communications, that is somehow different? If computer-to-phone communications are subjected to traditional telecommunications laws, why shouldn’t computer-to-computer transmissions?

And what would be the effect of regulating VoIP transmissions in the same way as traditional telecommunications? Even without knowing the details of the legislation that would apply, it is likely to result in higher costs, both for the providers of VoIP services and consumers. But it might also enable establishing protection for consumers that might be difficult to enact under Internet regulations. The trick is getting the balance right.