Wired on Friday: Like many expatriates here, we are always looking for the best international rates on calls home from the United States.

Most phone companies offer international rates in the 17 cents to five cents a minute range. However the internet now offers another alternative that, with the ever increasing use of broadband connectivity, may make paying for international calls a thing of the past.

That alternative is a company called Skype.com and it uses peer-to-peer (P2P) technology to connect someone to other internet users - allowing them to talk for free.

Skype is the brainchild of Niklas Zennstrom (37), a Swede, who co-founded and was the first chief executive officer of Kazaa and Janus Friis (27), a Dane, vice-president of strategy and a co-founder of Kazaa.

The two met in 1997 when they were both working for an internet service provider in Denmark. Kazaa is one of the most downloaded software applications in the history of the internet and also uses P2P technology to allow users to share files.

Since Skype launched two months ago, the beta version of its software has been downloaded 2.4 million times and already it has 1.2 million registered users spanning 170 countries. Instead of talking on a regular telephone handset, I can sit at my computer wearing a PC headset and talk over the internet to someone, like me, who has downloaded Skype's software and registered.

When I spoke to Mr Friis, he was meeting some software engineers in Estonia. The company employs 20 people between an office in Tallinn, Estonia, and corporate headquarters in Stockholm.

Skype "is spreading much quicker than Kazaa ever did", Mr Friis said. He attributes this "amazing growth pattern" purely to word of mouth. "People are getting their friends and contacts to use it too," he said. "This allows us to build a virtual global phone network."

In a recent report on the telecommunications industry, analysts at Daiwa Securities America said that Skype is "something to be scared of, and is probably set to become the biggest story of the year".

Internet-based telephony (voice-over-IP) is not new but it has never made major inroads against the traditional telecommunications companies due to issues like poor sound quality and network firewalls blocking many of the calls from being completed.

"We think Skype is a real application that allows mainstream people to call for free and our reception so far validates that," Mr Friis said.

At our house, we have used Skype to talk to family members in Ireland and the sound quality is better then the reception on a traditional telephone with little or no interference on the internet connection.

The company is not making any money at the moment. Mr Friis expects version 1.0 of the software to come out in March 2004 along with a premium version which will offer voice mail, conference calls, calls to normal telephones and multiple calls at one time.

The basic service will remain free. Consumers will be asked to pay for the additional premium services. The pricing model has not yet been decided.

There are some other start-ups with the same idea, most notably Vonage Holdings in Edison, New Jersey which, for $34.99 a month, offers unlimited calls to anywhere in the United States and Canada using a broadband internet connection.

By using P2P technology, Skype allows individual users to connect to each other directly, without need for a central point of management.

After Mr Zennstrom and Mr Friis sold Kazaa to Sharman Networks in Australia last year, they looked for another start-up that would have the same impact. "We wanted tens of millions of people to use peer-to-peer technology for things other than file sharing," Mr Friis said.

Skype's software can work with a modem but it is optimised for broadband. Calls between Skype users are encrypted with the AES algorithm, which is also used to protect sensitive US government communications. This security makes the call more secure than that of a traditional phone call, something which may become a big concern to law enforcement agencies, such as the FBI, that might find it more difficult to wire-tap.

Obviously free phone calls are a huge attraction to consumers but are seen as a threat by the traditional phone companies. With such large infrastructure costs, phone companies cannot provide free calls to consumers. They have always charged consumers by distance and time.

"We have not specifically met resistance," Mr Friis said. "But, obviously, the phone companies in the business of charging consumers don't like free phone calls."

He said there was "no real incentive for phone companies" to offer a service like Skype's. "We're changing telephony and this is a technological change," he added. "The era of charging per minute and by distance is over. Our plan for Skype is to lead the way in internet-based communications and to turn upside down what the telcos have been doing for a long time."