Friday, May 9, 2025

Bye Bye Skype

As Microsoft retires Skype in favor of Teams, it might be useful to recall just how impactful “voice over IP” services such as Skype were in dismantling the telco profit engine.


For example, looking only at revenue, in 2000 global international call revenues were in the range of $80 billion to $100 billion, with very-high profit margins. By 2020, international calling revenues had dropped to about $15 billion to $20 billion, with profit margins compressed. 

 

Decline in International Calling Revenue with VoIP Adoption (2000–2020)

Year

Est. Int'l Calling Revenue (Billion USD)

VoIP Adoption & Skype Milestones

Notes

2000

~80–100

Minimal VoIP presence; traditional PSTN dominates

High tariffs for international calls; telecom monopolies prevalent.

2003

~75–90

Skype launched; 11M users by 2004

Skype introduces free VoIP calls and low-cost PSTN calls, challenging telecom pricing.

2005

~70–85

Skype acquired by eBay ($2.6B); 54M users

VoIP gains traction; telecoms begin lowering rates to compete.

2008

~60–75

Skype grows to 405M users

Economic recession impacts telecom revenue; VoIP alternatives expand (Viber, WhatsApp emerging).

2010

~50–65

Skype disables third-party integrations; 663M users

Telecoms lose market share to VoIP; mobile data plans begin reducing VoIP dependency.

2013

~40–55

Skype-to-Skype int’l traffic up 36% (214B minutes)

TeleGeography notes VoIP capturing significant call volume; traditional revenue continues to decline.

2015

~30–45

WhatsApp, Viber, and others compete with Skype

Mobile apps erode Skype’s dominance; telecoms shift to data-driven models.

2018

~20–35

Skype daily users at 40M (2020 peak)

VoIP services saturate the market; telecom firms  focus on broadband and mobile data revenue.

2020

~15–25

Skype usage spikes 70% during COVID-19

Despite Skype’s decline to 36M daily users by 2023, VoIP remains dominant; traditional int’l calling revenue nears obsolescence.


Profit margins were an important part of the early, pre-VoIP story. Net profit margins on international voice were as high as 25 percent back in 2000. Current net margins are in the range of three percent to possibly five percent. 


In a real sense, VoIP services including Skype disrupted the telecom industry profit driver. 


Year

Domestic Long-Distance Margin (%)

International Long-Distance Margin (%)

Discussion

2000

~12–18%

~15–25%

High margins due to limited competition and high per-minute rates. Domestic margins are slightly lower than international due to local competition. Estimated from telecom sector data and peak long-distance revenue.

2001

~12–17%

~15–24%

Stable margins but early pressure from mobile and VoIP adoption. International margins are higher due to termination fees. Estimated from sector trends.

2002

~11–16%

~14–23%

Decline in domestic voice revenue began as mobile plans offered "bucket" minutes. International margins remained higher but faced VoIP competition. Estimated from sector data.

2003

~10–15%

~13–22%

Continued erosion from mobile and VoIP (e.g., Skype). International margins supported by high termination rates. Estimated from sector trends.

2004

~9–14%

~12–20%

VoIP and internet-based calling reduced costs and rates, squeezing margins. Domestic margins lower due to flat-rate plans. Estimated from sector data.

2005

~8–13%

~11–18%

Long-distance business peaked in 2000; by 2005, revenues were declining rapidly. International margins are higher due to mobile international calling demand. Estimated from sector data.

2006

~7–12%

~10–17%

Domestic margins hit by unlimited calling plans and VoIP. International margins supported by slower price erosion in mobile long-distance. Estimated from sector trends.

2007

~6–11%

~9–16%

Domestic long-distance became commoditized; international margins pressured by OTT apps (e.g., WhatsApp). Estimated from sector data.

2008

~5–10%

~8–15%

Long-distance revenues halved from 2000 peak. Economic recession and VoIP adoption further reduced margins. Estimated from sector data.

2009

~5–9%

~8–14%

Smartphone adoption and VoIP apps (e.g., Skype) eroded margins. International mobile long-distance retained higher margins. Estimated from sector trends.

2010

~4–8%

~7–13%

Domestic long-distance margins near sector average (~4.82%). International margins are higher due to termination fees and mobile demand. Estimated from sector data.

2011

~4–7%

~7–12%

Domestic margins low as carriers bundled unlimited long-distance. International margins declined due to VoIP growth. Estimated from sector trends.

2012

~3–7%

~6–11%

Domestic long-distance fully commoditized; international margins affected by outsourcing and fraud. Estimated from sector data.

2013

~3–6%

~6–10%

Mobile data surpassed voice revenue; domestic long-distance margins were minimal. International margins supported by the wholesale voice market. Estimated from sector trends.

2014

~3–6%

~5–10%

Voice over LTE and VoIP reduced standalone voice profitability. International margins pressured by low-cost VoIP providers. Estimated from sector data.

2015

~3–5%

~5–9%

Domestic long-distance margins were negligible as unlimited plans dominated. International margins declined due to OTT apps. Estimated from sector trends.

2016

~3–5%

~4–8%

Voice services bundled with data; domestic margins near zero. International margins are low but supported by wholesale carriers. 

2017

~2–5%

~4–8%

Domestic long-distance margins minimal; international margins affected by grey routes and fraud. Estimated from sector trends.

2018

~2–4%

~4–7%

Domestic margins near zero as voice bundled with data plans. International margins low due to VoIP and 5G adoption. Estimated from sector data.

2019

~2–4%

~3–7%

Voice commoditization is complete; international margins slightly higher due to wholesale voice demand. Estimated from sector trends.

2020

~2–4%

~3–6%

COVID-19 increased communication demand, but voice margins remained low due to free VoIP apps. Estimated from sector data.

2021

~2–4%

~3–6%

Domestic long-distance margins negligible; international margins low but supported by enterprise demand. Estimated from sector trends.

2022

~2–4%

~3–6%

Telecom services margin ~4.82%; domestic voice margins near zero. International margins are low due to wholesale price wars. Estimated from sector data.

2023

~2–4%

~3–5%

North America wholesale voice market faced intense competition, eroding international margins. Domestic margins are negligible. Estimated from sector trends.

2024

~2–4%

~3–5%

Wholesale voice market valued at $40.26 billion in 2025, but margins low due to VoIP and 5G. Domestic margins near zero. Estimated from sector data.


Also, VoIP was not the only huge driver of a shift in consumer behavior. “Calling” became something most people did on their mobile phones. 


Fixed-network revenue dropped from $200 billion globally in 2000 to under $50 billion by 2020, while mobile revenue grew from $500 billion to $1.6 trillion, for example. U.S. telco revenues likewise shifted from fixed to mobile; legacy voice to VoIP. 


U.S. Telco Revenues 2000 to 2024

Year

Mobile Voice

PSTN Voice

VoIP

2000

10

100

1

2010

60

60

21

2020

110

20

41

2024

130

4

49


Thursday, May 8, 2025

AI Will "Fundamentally Change the Business Model of the Web"

Despite the U.S. Department of Justice insistence that Alphabet’s Google search business is a monopoly in need of remediation, lots of observers might note that technological disruption is likely going to happen, in any case, rendering all the potential activity moot. 


According to Cloudflare co-founder and CEO Matthew Prince, “AI is going to fundamentally change the business model of the web,” which “for the last fifteen years has been search.”


“One way or another, search drives everything that happens online,” he said. “Today, 75 percent of the queries that get put into Google get answered without you leaving Google, get answered on that page.”


For example, Google's AI Overview has, by one estimate,  led to a 60-percent decrease in organic search traffic for publishers, with possibly $2 billion in foregone ad revenue.


And that obviously disrupts the advertising monetization model underpinning content on the web, which has featured Google search sending traffic to third-party content sites. But AI changes all that by providing a direct answer without sending the user someplace else. 


Since most digital advertising models depend on high volumes of visitors to generate impressions and clicks, less traffic means fewer ad views, lower click-through rates, and ultimately, diminished income. 


“The consequence of that means that original content creators that are creating that content, if they were deriving value through selling subscriptions or putting up ads, or just the ego of knowing that someone is reading your stuff, that’s gone, right?” he adds. 


A decade ago, scrapped pages led to traffic about once for every two pages indexed, he said. Today, the ratio might be more like six to one.


For users on OpenAI the ratio is more like 250 to one, he argued. At Anthropic the ratio is perhaps 6,000 to one. 


“And if content creators can’t derive value from what they’re doing, then they’re not going to create original content,” he added. All of which suggests some new business model has to be created. 


The other point is that the search business model that supposedly drives Google’s monopoly arguably is going to be disrupted, in any case.


Is DoJ Alphabet Antitrust Unnecessary?

The U.S. government's antitrust actions against Alphabet (advertising technology in one case and search monopoly in another) might be a case of “fighting the last war,” as artificial intelligence models arguably are displacing search in any case. Apple argues that search volume fell in April for the first time ever, for example.


Some of us might argue that the monopoly value of traditional search and advertising is already under threat from AI, which could organically erode Google’s dominance without the need for heavy-handed intervention.


In fact, that is precisely the sort of disruption we see often in fast-moving technology markets.


In other words, regulators are pursuing remedies for a monopoly that may soon be undercut by AI-driven market forces. The whole effort is possibly quite unnecessary.

Tuesday, May 6, 2025

Data Center Capacity Demand to Grow 3.5X Between 2025 and 2030, McKinsey Estimates

Momentary concerns about enterprise or hyperscale data center demand aside, virtually all observers might agree that demand for data center capability is going to grow substantially, to support artificial intelligence and computing workloads  in general. 


Consultants at McKinsey and Co., for example, estimate that between 2025 and 2030 data center capacity demand is going to grow by 3.5 times. 


source: McKinsey and Co. 


That, in turn, will drive an estimated $3 trillion to $8 trillion in additional data center capacity by 2030.


source: McKinsey and Co.

Are Government Home Broadband Networks Facing Worse Business Cases?

Dr. George Ford, Phoenix Center for for Advanced Legal & Economic Public Policy Studies chief economist, notes in a recent study that three sales of municipal home broadband networks illustrates the financial issues such networks face. 


The Bardstown, Ky. network, for example, privatized in 2024, illustrates the revenue side of the problem. 


source: Phoenix Center 


Another study looked at the financial performance of every municipal fiber project (with published financial data) in the U.S. operating in 2010 through 2019. None of the 15 projects generated sufficient nominal cash flow in the short run to maintain solvency without infusions of additional cash from outside sources or debt relief. 


To be sure, 68 operating networks provide no public financial information, some observers note. 


Similarly, 87 percent have not actually generated sufficient nominal cash flow to put them on track to achieve long-run solvency. 


Some 73 percent generated negative nominal cash flow over the past three fiscal years, leaving them poorly positioned to make up their deficits and causing them to fall farther into debt, the authors note. 


Fully 53 percent of projects would not be on track to reach breakeven even assuming the theoretical best-case performance in terms of capital expenditures and debt service.


Business Model Issue

Impact

Sources

Short-Term Revenue Shortfalls

Most projects fail to cover operating costs with subscription fees, requiring taxpayer subsidies.

2,4,10

Long-Term Viability Concerns

Only 2/15 projects studied showed potential for self-sustaining cash flow over 20-25 years.

2,6,10

Network Upgrade Costs

Frequent tech advancements require reinvestment, straining budgets not designed for dynamic needs.

137

Cross-Subsidization Risks

Many rely on municipal utility funds or bonds, distorting competition and transparency.

7,10,11

Crowding Out Private Investment

Municipal entry reduces private sector incentives to build/upgrade networks in the same areas.

3,6,11

Project Management Complexity

Lack of expertise in broadband operations leads to cost overruns and service quality issues.

3,5,9

Political vs. Market Incentives

Prioritizing coverage over profitability results in unsustainable pricing and service models.

3,10,11

Financing Challenges

Securing loans/investment is harder due to incumbent opposition and uncertain ROI.

5,9,11


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