Telecom New Zealand says it sees peer-to-peer telephony Skype as a "competitive threat" and is monitoring and investigating it at all levels.

According to Telecom monitoring, Skype has 40,000 users in New Zealand, says company spokesman Nick Brown. That figure amounts to a third of all Telecom broadband users but despite that Brown says Skype's impact is not significant yet.

Skype spokeswoman Kelly Larabee confirms Telecom's figure of NZ users. Larabee says Skype collects aggregate data based on users' IP addresses, in accordance with the provider's end-user licence. However, Skype does not give out such data to telcos, Larabee says.

As for the actual Skype traffic, it is encrypted to the 256-bit Advanced Encryption Standard (AES, sometimes known as Rijndael) used by US government departments and international organisations to protect sensitive data. To date, AES encryption has not been cracked.

Skype recently announced that it has some 24 million registered users around the world. The provider also signed a deal last week with Hong Kong telco and network provider Hutchison, and launched a co-branded portal that offers Skype voice services over the former's fibre-optic network.

However New Zealand providers other than Telecom seem to doubt Skype has a future. Ihug, which sells voice products such as toll calls and VoIP over its wireless data network, sees no real value in Skype, according its general manager of networks, David Diprose.

Diprose cites the low quality of Skype calls compared to those made over the PSTN as its main fault. This despite Skype having greater amounts of bandwidth (up to 128kbit/s compared to 64kbit/s) and being fully digital end-to-end with no analogue-to-digital conversions compared to the PSTN.

He adds that when Skype customers use the SkypeOut service for calling the PSTN, the ISP incurs the same costs as when going through a mainstream voice provider. Even though there are still cost advantages to doing so, at a quality trade-off, Diprose says Ihug prefers to stick with the service arrangements and quality standards it has already established. Diprose says it will be interesting to watch how Skype grows, however.

Wireless network provider Woosh, which has long been expected to launch its own voice service, says the Hutchison-Skype deal looks interesting. Sandra Geange, Woosh's general manager of sales and marketing, says the provider is familiar with Skype and is working internally on how it fits into what it wants to do in the market in the future.