The business column - Patrick Hosking tests the Skype hype

Googling, Hoovering . . . will the next verb to make the dictionary be "Skyping"? eBay thinks it wil

''To Skype" hasn't yet made it into the Oxford English Dictionary. Unlike Hoovering and Googling, the public haven't yet taken Skyping to their bosom. Most probably don't yet know what it means.

But eBay, the popular online auction house, is convinced they soon will and that the trademark could one day achieve the ultimate accolade, becoming a verb. eBay has just paid £1.4bn for Skype, a technology business that enables people connected to the internet to phone each other free. Anyone can download the necessary software gratis. They then just need a headset to chat to anyone else in the world who also Skypes. Soon, eBay hopes, it will be routine to tell people: "Don't waste money on a landline call. Skype me."

Two years ago Skype, with headquarters in Luxembourg but operating mainly out of London, was little more than the plaything of two Scandinavian businessmen. Today it is the talk of the industry. Of the other internet telephony businesses, Vonage is promoting itself in Britain, while BT has been developing web-based voice services for some time. But BT is uncertain about the technology, fearing it may affect its fixed-line customer base.

It is Skype that has made much of the running. The two founders, Niklas Zennstrom and Janus Friis, are heroes to the online cognoscenti. They founded Kazaa, the online music-sharing business that was such a thorn in the side of the traditional music publishing industry. By word of mouth and word of mouse, they have created a huge user base for Skype: they claim to have 54 million users worldwide, including 1.9 million in the UK.

As with any new technology, there is a danger of hyperbole, or Skype hype. Users complain that sound quality can be poor. Both parties to a conversation have to be Skype users for the call to be free. Both have to be logged on and sitting at their screens.

Some City analysts believe eBay has vastly overpaid for the company, which made paltry revenues of $7m last year. It makes money from low-cost voice-calls made to non-Skype users through SkypeOut, and from advertising. But eBay claims it can harness the technology to boost revenues from its online auctions. Bidders buying high-value items such as cars would benefit from being able to talk to the sellers.

eBay has shown itself a shrewd buyer of assets in the past. There were howls of derision when it paid a hefty price for PayPal five years ago, yet the online payments company has enabled eBay customers anxious about fraud to pay for goods with confidence. If Skype can improve the sound quality, eBay could have a big winner on its hands. And with eight million British households now signed up to broadband, it could spell further trouble for BT - and for conventional telecoms operators around the world.

The siege of Rentokil Initial has been presented almost entirely in terms of what it means for shareholders. Sir Gerry Robinson, the I'll Show Them Who's Boss TV star who used to run Granada, is trying to gee up a revolt that would see him installed as executive chairman and given about £55m in free shares. Many shareholders are gobsmacked that Sir Gerry (whom John Cleese once dubbed "a jumped-up caterer") is doing this, but he has the backing of at least one major investor, the US group Franklin Templeton, which owns 15 per cent of Rentokil stock.

While the share price see-saws daily with speculators and hedge funds jumping in and out, a less glamorous side of the story is being overlooked. This is the future security of the Rentokil pension fund. There is an army of rat-catchers, damp-proofers, laundry workers and other low-paid people for whom this is more than just a takeover battle. Rentokil employs 90,000 people. Most don't qualify for the pension fund or choose not to join, and the more attractive defined-benefit chunk of the scheme was closed to new members in 2002. Nevertheless, the group-wide scheme still has between 20,000 and 25,000 members.

It is in a sorry state. Its assets were valued at £570m at the last count. Its liabilities - that is, all its expected commitments to pay pensions in the future - are estimated at £833m. In other words, it has a deficit of £263m. The funding level - assets as a proportion of liabilities - is an exceedingly low 68 per cent. Among our 100 biggest listed companies, only four that sponsor pension schemes are in a more parlous state by this measure.

Yet Sir Gerry's plan, if he gets to run Rentokil, is somehow to raise £634m from the firm and pay it to shareholders. It's hard to see how the company can do this except by borrowing the money or selling company assets. The pension-fund trustees should be suspicious. So should the new pensions regulator. If he is to be taken seriously, Sir Gerry must first recognise the pension promises made to some of the country's most vulnerable workers and ensure they are honoured.

Patrick Hosking is investment editor of the Times

This article first appeared in the 19 September 2005 issue of the New Statesman, The gathering storm