Did Skype Rip $143 Billion a Year Out of Global Voice Revenue?

Skype CEO Josh Silverman offered a few statistics at Communicasia about how disruption works. Today, 12 percent of the world’s international calling minutes are on Skype, and Skype users spend seven to eight minutes of "free" calling for each minute that is a "paid" minute of use.

Skype’s on-net international traffic (between two Skype users) grew 51 percent in 2008, and is projected to have grow 63 percent in 2009, to 54 billion minutes (TeleGeography has not yet published 2009 figures).

Already the world average retail price of an international call is under one-fifth of the $1.20 per minute price of 15 years ago, says Telegeography. Which leads to an interesting exercise.

Assume for the sake of argument that an "average" international long distance call today costs 22 cents a minute.

Assume that, over the last 15 years, competition alone would have driven average prices down by 50 percent, so that the average price of an international call dropped to 60 cents a minute, even without further price pressure from Skype and other IP voice providers.

Then assume the "Skype effect" (overall pricing impact caused by Skype and other VoIP providers) is 38 cents a minute, the difference between the "natural" decrease to 60 cents a minute and current 22-cent rates arguably lower because of Skype and other VoIP providers.

Using those assumptions, the global telecom industry now "loses" $142.9 billion a year in revenue because of overall lower rates caused by VoIP competition, even assuming that Skype market share is simply a shift of some traffic and revenue ($11.9 billion imputed value) from the incumbent providers to a "new" competitor.

It's just an exercise, as it is impossible to determine precisely how much lower prices would have affected demand, in the absence of the impact of VoIP on average calling prices, or how much prices would have fallen for other reasons.

The point is that disruption can create an "okay" business out of a "really good" business, looked at from the standpoint of an attacking provider. If a firm has zero market share, then creating a business worth nearly $1 billion in annual revenues is not a bad thing.

Obviously we are dealing here with "imputed" revenue, not actual revenue, since Skype doesn't today make anywhere near 22 cents a minute, on average, across all of its traffic. Indeed, seven to eight times more zero-revenue calls are made, compared to "paid" minutes of use.

The overall impact is quite a bit more dramatic on legacy providers, though obviously good for buyers and users of trans-border voice service. Losing some amount of market share is not the most-important impact. The bigger issue is the overall decline in average prices per minute.

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