Skype Technologies, a company that offers free software for making phone calls over the Internet, is today introducing a new version of its application that includes a prepay service for making calls to any fixed line or mobile phone around the world at local rates.

Skype for Windows Version 1.0 is an updated version of the Luxembourg-based company's flagship offering, which lets broadband Internet users make free phone calls and chat with other Skype users over a peer-to-peer (P-to-P) application. The new software adds a service called SkypeOut, that lets users call mobile and fixed-line phones worldwide at discounted rates because the calls travel through the internet and only connect with the public phone system at the last mile.

"We have a very different offering: a software application that uses the internet as a carrier for the voice," said Skype CEO and co-founder Niklas Zennstr"m. "The impact is that you cannot charge for phone calls the same way, just as you can't charge for an email or visiting a web page."

Skype announced that it had sealed routing and termination agreements with four carriers on Friday, allowing it to offer the service.

The company is touting global calls at local rates and users who sign up for the service are automatically on the SkypeOut Global Rate plan, which allows them to call 25 countries for €0.012 a minute.

"We aim to make everything very simple and my experience is that phone companies try to make their pricing very complicated so you never really know how much you are paying... our plan is simple and transparent. We are trying to make the world very small," Zennstr"m said.

Global Rate plan countries include Russia, China, Hong Kong, the USA, New Zealand and Norway. Calls to other destinations cost varied prices: Users can call the island nation of Vanuatu for €0.48 a minute, for example, or a mobile phone in Argentina for €0.09 a minute. European Union residents are subject to VAT on all calls, however, and the service has a prepay minimum of €10.

Users can visit Skype's website to credit their account, or log in and view their phone record. Zennstr"m pointed out that SkypeOut is a value-added service, however, and that free calls between Skype users are the company's core offering.

Skype's offering represents a fundamental shift in how telecom services are offered, said Jon Arnold, voice over Internet Protocol (VoIP) program leader for Frost & Sullivan Inc.

"In the big picture this is very threatening (to traditional telecom providers) because it works. They've demonstrated that they can make end-to-end phone calls and cut the phone companies out of the equation" Arnold said.

The analyst noted that VoIP is only one part of a new communication model that incorporates data, video and voice.

"Voice is just the beginning. Once you are in the IP environment and you bring in video and data, it's all about who can create the best application ... it's about interactive multimedia," Arnold said.