Microsoft Buys Skype, Illustrates Changes in Access Business

Microsoft has bought Skype for $8.5 billion, in an all cash deal. It is the biggest acquisition in the 36-year history of Microsoft.

Microsoft might would want Skype for a number of reasons. Read more about the deal here: http://www.carrierevolution.com/articles/209963/microsoft-buys-skype/.

A decade ago, one could have found much speculation about the extent to which application providers such as Google, Apple, Microsoft or others might "want to become telephone companies." As it turns out, that was the wrong way to phrase the question. A better way would have been to ask whether firms such as Microsoft, Apple or Google might "want to become communications providers."

Clearly, the answer to that question is "yes." None of them want to be "telephone companies," even though video collaboration, voice communications and messaging have become core features for a mobile device, a mobile operating system, email, social networking and other apps.

But that also should raise new questions. What is a "telco, cable company or mobile service provider," when devices, apps and to a lesser extent operating systems also offer communications features?

As it turns out, the unique role in the application ecosystem for telcos, mobile service providers and cable companies is "access" to the global Internet. That doesn't mean those sorts of firms do not also create and sell apps; they do. Voice, texting and video entertainment are apps created and sold by the access providers.

But as the Microsoft purchase of Skype shows, communication applications can be supplied by any number of entities, so the app function is not the "unique" role. The unique role is "access."

That does not mean access providers are restricted from the applications role, simply to note that apps are not the unique role. That also suggests access providers might in the future find sustainable revenue models that build on that unique access role. And many of those applications logically will grow from the unique access role.

Each contestant also can build on a core "app" competency. For mobile providers, location is obvious. For cable providers, many of which also have become content owners, content is a core "app" competency. For fixed line telecom providers, business services remain an area of key competence.

But as Microsoft's move illustrates, "communication services" no longer are a unique competence for access providers. A key competence, to be sure; simply not a unique and irreplaceable competence.

International long-distance slumps, while Skype soars

Growth in international call traffic has slumped while international traffic routed using Skype continues to accelerate, says TeleGeography Research.

International phone traffic grew an estimated four percent in 2010, to 413 billion minutes, down from five-percent growth in 2009, and a far cry from the 15 percent average growth rate achieved during the previous two decades.

Of course, traffic is only part of the story. International long distance, as well as most other forms of long distance service, also have been affected by lower per-minute pricing as well.

International long-distance slumps, while Skype soars: CommsUpdate : TeleGeography Research

Skype Files For IPO, Only 6 Percent Of Users Pay

Skype’s proposed initial public offering may offer a bit of insight on the future of international voice revenue. According to TeleGeography, Skype represents about 13 percent of global long distance traffic.

As of June 30, Skype was averaging 124 million users a month, with only 8.1 million of those paying users (out of a total of 560 million registered users). So 6.5 percent of Skype users are paying for services.

As a rough calculation, free Skype minutes of use therefore represent about 12 percent of global traffic. If the ratio of paid to non-paid use does not change, and if Skype keeps growing, the percentage of non-paid international calling, texting and video sessions will keep growing as well.

Paying Skype users, however, pay an average of $96 a year. Skype’s strategy is to keep growing its overall number of users and convert more of them to paying customers.

At least for the moment, most international trafiic represents a revenue stream for some service providers. But the percentage of non-paid traffic seems bound to increase. At the same time, the average revenue any single session represents likely will keep falling.

This implies that voice revenues will get cheaper, on a per-minute basis, while more traffic will move to the "free" category.

Skype revenues for the first six months of 2010 were $406 million, with a net income of $13 million. But a big portion of that was from interest income. That is a three percent net margin, overall.

Its income from operations was only $1.4 million for the six months, though margins on that business are 51 percent.

Skype Files For IPO, Only 6 Percent Of Users Pay

Skype Blocks Fring Video Calls

Commercial disputes in the communications business are not uncommon. Now fring says it has been forced to stop its four years of Skype interconnectivity following threat of legal action by Skype.

The apparent reason is fring’s recent launch of mobile video calling on the Apple iPhone 4.

www.fring.com - Following fring’s string of mobile video calling wins - Skype blocks fring

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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Skype CEO Envisions Switching Devices During Calls - PCWorld

Skype eventually will give users the ability to seamlessly switch devices between calls at the push of a button, says Skype CEO Josh Silverman. That would allow a user to start a conference call on a desktop PC switch to a mobile phone and then to his in-car navigation system without dropping the call.

Currently, Skype users can transfer calls to contacts or phones using the software's call transfer feature, but that feature doesn't yet allow users to transfer calls between devices using the same account.

Skype CEO Envisions Switching Devices During Calls - PCWorld

New Skype for the iPhone

A new version of Skype for the iPhone supports voice calls over 3G. I don't know about you, but I still find voice over 3G a challenging and non-predictable experience.

A recent call I was on was flaky enough that we reverted back to the public switched network.

New Skype 2.0 app for the iPhone allows voice calls over 3G -- Engadget:

Wi-Fi-Capable Version of Skype for Smartphones Coming Later This Year

A fully-featured Android client from Skype will be available "later this year," Skype says, and that version will include video support and be usable across all mobile networks, unlike the more restricted mode Skype now finds itself using on the Apple iPhone and Verizon Droid, for example, meaning among other things that Wi-Fi support will be available.

That isn't supported today on AT&T or Verizon networks and devices, although there may be times when users are happy their Skype voice sessions on a Droid actually are laundered through the Verizon voice network, for reasons of stability and voice quality.

The move will not dramatically alter the economics of mobile voice services, at least at first. But there isn't much doubt that mobile VoIP will, over time, erode the amount of money and profit margin voice represents for the mobile industry, forcing mobile operators to change their revenue and business models, just as fixed-line operators now are having to adjust.

Skype Expects 1 billion Users by 2015

Skype Technologies expects it will reach one billion registered users, nearly double its current registered user base, by 2015, and half those customers were be business users, says David Gurle, Skype VP.

Business customers will bring in 20 percent to 30 percent more revenue on average than consumers, Gurle predicts.

Since 2009 revenue was $716 million with a bit more than half a billion accounts, if accounts nearly double to about a billion, then Skype income could hit the $1.5 billion level in 2015.

Those figures tell quite a story about the demise of the legacy voice business, which had been underpinned by high-margin international calling and widespread use of fixed lines for voice. In 2000, for example U.S. carriers alone billed $15 billion in international voice revenues. By 2007, U.S. carriers bill about $6.5 billion in international voice, according to Federal Communications Commission data.

Skype now represents 12 percent of international long distance traffic, and earns $716 million. It would be fair to suggest that, 10 years ago, 12 percent of itnernational long distance would have been worth as much as two orders of magnitude more gross revenue.

Skype expects 1 billion users by 2015 - The Boston Globe

HD Voice Increases Call Duration, Says Skype

Jonathan Rosenberg, Skype chief technology strategist, says high-definition call quality can increase the length of a voice call 45 percent. That, in turn, could theoretically lead to higher revenues for application or service providers whose services are sold "by the minute." Call duration might have no revenue implications at all if the endpoints are talking on a "no incremental cost" basis, though.

Skype's studies suggest, as you would expect, that audio quality is higher on a high-definition call. The Skype survey suggests there is a correlation between call audio quality and call duration.

With the lowest quality, approximating mobile call quality, the average call lasted about 21.5 minutes. At the highest quality it went about 31 minutes.

It's difficult to say whether the relationship is correlational or causal, though. One variable might be that users on the highest-quality codecs are predisposed to use Skype for conferencing sessions, which would have call duration parameters quite different from a casual voice conversation between two people, for example.

Skype on Verizon Wireless Will Use TDM Network

The Skype  Mobile client that will run on Verizon Wireless smartphones will run in the background on Research in Motion BlackBerry Storm, Storm 2, Curve 8330, Curve 8530, 8830 World Edition and the Tour 9630 devices.

It will also be available on the Motorola Droid, the HTC Droid Eris and the Motorola Devour.
Subscribers will be able to make and receive unlimited and free Skype-to-Skype calls, and use Skype Out to make international calls to any phone at Skype's standard rates. So, the client will be especially useful for users with family abroad, according to Verizon Wireless.

The calls will be carried over Verizon Wireless' voice network, and won't impact overall network quality, according to John Stratton, executive vice president and chief marketing officer at Verizon Wireless. That's probably the most-significant element of the plan.

The Skype client could well help Verizon Wireless set itself apart from other U.S. mobile operators in terms of the dependability of audio quality.

What "you'll see from Verizon, you won't see from anyone else," Stratton says.

So there's your plot twist: Skype, designed to circumvent the old TDM voice network, now will use the TDM network to ensure voice quality on global calls to non-Skype telephone numbers.

It's also a clever way to make better use of an existing asset to provide better user experience and differentiation in the market.

Unlimited Skype Calling on Verizon Smartphones in March 2010

Starting in March 2010, all Verizon Wireless customers with smartphones and a data plan) will be able to make and receive unlimited Skype-to-Skype voice calls to any user in the world over its 3G network, which is something that AT&T users have been able to do since last autumn.

From right to left,  John Stratton, executive vice president and chief marketing officer for Verizon Wireless, and Josh Silverman, Skype's CEO, announcing their strategic relationship to bring Skype to Verizon Wireless smartphones during a press conference at the 2010 Mobile World Congress in Barcelona, Spain.

Consumers Now Drive Unified Communications

A funny thing has happened to VoIP, unified communications and videoconferencing. Originally seen by many developers as products most important to business and enterprise users, each has gotten most traction in the consumer space.

 Analysts at Gartner, for example, now say that consumer markets, and not the unified communications and collaboraion vendors, are driving innovation in the UCC space.

Some 79 percent of respondents to a recent survey by Global IP Solutions said that they currently use a consumer application such as Skype as their primary videoconferencing application, for example.

Skype points out that more than 30 percent of its global user base uses the service for business, while “an average of 34 percent of Skype-to-Skype calls now including video,” says Josh Silverman, Skype CEO.

Skype also is used for international traffic and many businesses are becoming more open to using hosted solutions for business applications.

An argument might also be made that much of the value of UC or UCC actually is captured by use of relatively simple tools such as Skype, or Google Voice or any number of other rather easy to understand consumer applications.

Recession Spurs SMB Shift to Conferencing, Away from Overseas Travel

The global recession seems to have spurred more thinking--and activity--by businesses large and small about the use of conferencing services and applications as a replacement for business travel.

A recent survey of U.K. users by Skype indicates that about a quarter of U.K. small and mid-sized businesses have started using conferencing and communications to displace international travel.

Although 24 percent of U.K. small business executives surveyed communicate with international colleagues on a daily basis, 54 percent say they have had to take unnecessary overseas trips when conferencing would work.

The emergence of more sophisticated technologies is having a clear impact on the way that businesses are opting to communicate and do business.

About 41 percent of respondents says they use instant messaging to avoid some travel. About 40 percent use Skype, while 34 percent use teleconferencing. About 28 percent say they use some form of video conferencing.

Video-based communication likely is the biggers winner as travel substitutes have been sought.

Significantly, almost half of SMEs in the United Kingdom (49 percent) are planning to increase the amount it is used for business and 59 percent indicate it will be a direct replacement for business travel.

That isn't to say other methods are ineffective. About 65 percent of respondents said email was effective. Voice was seen by 39 percent of respondents as effective. Video calls were seen by 36 percent of respondents as effective, compared with 29 percent citing Skype.

About 17 percent say instant messaging is effective. About nine percent say social networking is effective as well.

But 36 percent of respondents said they miss having a real picture of the person that they are dealing with. For videoconferencing as for entertainment television, the advantage of "realism," a greater sense of "being there," is what drives image or audio resolution, high-definition images and audio, bigger displays and ease of use.

“With the obvious cuts in business travel, companies need to find new ways to communicate, collaborate and compete,” says Stefan Oberg, Skype for Business VP.

“Without regular face to face meetings, tools that enable people to build and maintain trusted relationships are key," he says.

Skype Traffic Grows 63%

International long distance traffic growth has slowed, while Skype traffic is accelerating, says Stephan Beckert, TeleGeography strategy VP.

Over the past 25 years, international call volume from telephones has grown at a compounded annual rate of 15 percent. In the past two years, however, international telephone traffic annual growth has slowed to only eight percent. To be sure, growth rates always slow for any product or service that has attained high penetration, simply because any additional growth is compared to a larger base of existing users.

There have been some recession-related changes, though overall demand obviously has remained strong. Traffic to Mexico, the world’s largest calling destination, declined four percent in 2008, and aggregate traffic to Central America declined five percent, for example.

While international telephone traffic growth has slowed, Skype’s traffic has soared. Skype’s on-net international traffic (between two Skype users) grew 51 percent in 2008, and is projected to grow 63 percent in 2009, to 54 billion minutes.

"The volume of traffic routed via Skype is tremendous," said Beckert. "Skype is now the largest provider of cross border communications in the world, by far."

Skype "Dial Tone" No Threat to Mobiles, Fixed Lines

About 21.5 million Skype users were logged in simultaneously on January 11, 2010, which likely is a record.

Some refer to this as "Skype dial tone."

To give you some idea of how far Skype would have to go to be a credible alternative to other forms of consumer voice, consider that in March 2009 there were 4.1 billion mobile subscriptions in service, according to the International Telecommunications Uniion. The ITU also estimates there are about 1.3 trillion fixed lines in service globally.

So make that 5.4 billion devices that have "dial tone," compared to a third of a percent of Skype accounts, at peak. To the extent communications really does depend on network effects, Skype has quite some ways to go.

What Google Could Do with Gizmo5

Google has bought Gizmo5, an IP communications firm with a deep understanding of Session Initiation Protocol, which has been adopted globally by communications firms as the protocol for handling IP-based communications including voice, video and messaging.

That of course means Google could do lots of things. The "grabber" headline might be that Google now wants to "out-Skype" Skype by introducing a feature-rich calling service able to communicate with standard telephone devices, but also allow all sorts of rich and affordable features for IP-enabled devices on broadband networks.

According to that logic, Google might be readying a disruptive global calling service aimed either at Skype or at the global tier one telecom providers, either mobile or fixed.

But Google has other options as well. Those options might make as compelling headlines, but could make virtually any Google application more compelling.

In any of a number of scenarios, Google might be looking at anything but becoming a challenger to traditional telecom services, and maybe not even a direct challenger to Skype. The value of SIP is that it can "communications enable" virtually any Web application.

It could add voice communications, video or audio conferencing, messaging or other message and call handling features to any other Web-based application. As eBay once described the upside when buying Skype, voice communications could be added to any potential eBay transaction.

That didn't materialize, but the point is that SIP will be easy to integrate with Web applications and global IP communications in the way communications service providers are used to providing it.

In the perhaps more likely scenario, Google would work to embed rich communications into any number of its applications. In its mobile search efforts, Google would be able to create a location-based search experience that included one click calling, for example.

The same would be true for its mapping and turn-by-turn communications feature for Android mobile devices.

SIP could help Google embed live communcations links in Google Docs, or Wave, allowing real time communications to be a simple one-click feature of collaboration.

The point is that Google likely is not looking at anything so pedestrian as a "Skype killer." Embedded voice, messaging and video communications might be a very attractive feature for any advertiser using any Google application as an ad venue.

In any of these scenarios, Gizmo5 brings Google, and Google Voice, the ability to embed communications in nearly every application. It is the mass market equivalent of "communications enabled business processes" in the enterprise space.

Sure, Google might leverage the Skype style communications to enhance Google Voice. But it seems unlikely to me to stop there. As VoIP proponents always have argued, the real value lies not in free or cheap calling, but in changing the nature of the communications experience. In all likelihood, Google is thinking that way.

Mobile VoIP is Inevitable, Yankee Group Says

Flat-rate data pricing has made mobile VoIP applications inevitable, and over time, all U.S. carriers will end up allowing them, says Yankee Group analyst Carl Howe. That, in turn, is going to have profound impact on the mobile service provider business model, as voice now is the key revenue driver.

Some of the effects are easy to predict. International call traffic will migrate to VoIP. In the U.S. market, for example, domestic voice calling minutes are cheap, but international rates are fairly high.

On the other hand, mobile VoIP also will shift international traffic from the landline networks (including use of VoIP from fixed broadband connections) to the mobile network.

Less easily quantified is the boost mobile VoIP will give to purchase and use of specific handsets, and the emergence of specific mobile VoIP user segments. For example, devices with front-facing cameras potentially can become the foundation for mobile videoconferencing services and applications.

If you think of BlackBerries as "email" centric phones, and iPhones as "mobile Web" phones, while other devices are "social networking" or "navigation" oriented, you can see where the niches might be.

It is conceivable that "flat-rate data plan caps will tighten," says Howe. Mobile service providers might try to avoid a wholesale collapse of voice revenue by trying to manage network capacity through through more-stringent bandwidth caps.

The operative word in that sentence, however, is “trying,” says Howe. Data caps and over-cap pricing are likely to receive intense regulatory scrutiny to ensure that operators aren’t gouging customers in an attempt to replace lost voice revenues.

The other big unknown is whether service providers will be allowed to create optional "voice optimized" or "conferencing optimized" service plans for users that want priority handling of their own conferencing and voice bits, or "video optimized" plans for users who deem video apps to be key.

In a sign of things to come, Verizon Wireless and AT&T now allow use of mobile VoIP. Google's Android phones running on Verizon's network have VoIP applications available on them.

AT&T also now allows use of the Skype VoIP application on AT&T’s 3G network and iPhones. Vonage and iBasis, among others, also support mobile VoIP calling.

The VoIP trend actually only accelerates an on-going trend. U.S. mobile service provider monthly voice revenue per subscriber has declined from an average of $58 in 2000 to less than $35 in 2009. VoIP might accelerate that process, but is not singlehandedly causing it.

Data plan revenue is the obvious replacement revenue source. And with more application stores offering mobile VoIP clients, it will be hard to stop users from substituting VoIP for traditional calling. Of course, mobile providers have options.

They might not want to do so, but one way to prevent substantial migration to VoIP calling is simply to lower prices for tradtional calling, especially under conditions where voice is carried on one network, and data on a separate network. Part of the overall equation is the additional load mobile VoIP calling will place on 3G networks. In a sense, providing incentives for users to use the voice network for voice offloads traffis from the 3G networks.

Ease of use will emerge as a key issue as more mobile VoIP clients are made available. For many users, domestic calling is cheap enough that mobile VoIP will not provide much advantage, as compelling as international VoIP will be. Anything other than the normal process people now use to dial calls will create huge barriers to domestic VoIP usage.

Call quality also will be an issue. People are used to mobile voice call quality being less than landline. They are used to VoIP calls being equivalent to mobile call quality. But quality less than mobile will create barriers to usage.

On the other hand, use of high-quality codecs will be an incentive to use of mobile VoIP. Anybody who has used Skype high-definition codecs might have new incentives to use VoIP calling services that offer such experiences. Adoption barriers exist here, as both ends of a circuit must be equipped with high-performance codecs to maximize the experience.

The other unknown is the impact of devices able to support multitasking and integrate data services such as instant messaging and presence functions with voice sessions.

Carriers might want to ationalize data and voice pricing, says Howe. A $30 per month data plan capped at 5 GB a month allows your typical 24 Kbps codec VoIP user to talk for nearly 21,000 minutes. That makes the $60 AT&T charges for 900 voice minutes a month look pretty expensive, says Howe.

Operators should do the math on tariffs they charge and adjust rates so VoIP arbitrage becomes less attractive.

Service providers also should build their own mobile VoIP apps, optimized to work with 3G networks as well as Wi-Fi and 4G networks they also may own. That of course assumes such optimization will remain legal once the Federal Communications Commission finishes its rulemaking on network neutrality.

T-Mobile Ultimately will Allow Skype over 3G

Despite understanable teeth gnashing over T-Mobile's blocking of Skype when using the 3G network, T-Mobile ultimately will allow it, either because customer pressure forces them to do so, or because European Union regulators do so.

http://oqlz.com/t-mobile-mobile-voip-integration-inevitable/

Skype Proves Stand-Alone Long Distance is a Business

Now that it appears Skype will become a stand-alone company, we have to note the irony. Telcos and cable companies have concluded that long distance no longer is a viable stand-alone business. That's essentially why AT&T and MCI Worldcom do not exist as independent companies.

But it is worth keeping in mind that when an executive says something cannot be done, what that really means is that "I cannot, with my cost structure, personnel or technology holdings, do that." Skype will be able to compete as a stand-alone long distance provider. To greater or lesser degrees, much the same can be said for calling card providers.

As true as it may be that a service provider cannot make a viable business selling long distance alone, that isn't true for all market contestants. One simply needs a different cost structure and channel.

The issue now is what Skype actually is worth. Merill Lynch analyst Justin Post says Skype is worth $2.2 billion, and that could grow to $3 billion by the time it either goes public in 2010 or is sold.

Jeffries & Company analyst Youssef Squali values Skype at $1 billion.

Thomas Wiesel analyst Christa Quarles thinks Skype is worth $1.7 billion. Credit Suisse analyst Spencer Wang, meanwhile, values Skype at $1.85 billlion.

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