Analysts ponder what an independent Skype will mean for Canada

Analysts say an independent Skype could make significant noise in the market, even in Canada, where the full suite of Skype services aren’t yet available. Comments come after a busy month during which TeleGeography Research described Skype as the world’s largest long-distance phone company and its owner, eBay Inc., announced plans to unload the ill-fitting VoIP service. “The founders Niklas and Janus would ultimately like to buy it back,” says Toronto-based, independent telecom analyst Jon Arnold. “But the litigation with Joltid could get very contentious.” Joltid is a P2P traffic optimization technology and is licensed back to Skype (eBay). Joltid is arguing that Skype has breached the licensing agreement by opening the code, which is why any purchase of Skype by its former owners could lead to legal complications. “Niklas and Janus were smart enough – or crafty enough – to keep that code out of the Skype deal with eBay,” says Arnold. “The fact that Niklas is jumping back in says a lot about the potential for Skype.” That said, there is apparently a wide gap in price between what the founders are willing to pay and what eBay thinks Skype is worth. This deal is made all the more interesting by the fact that research-firm TeleGeography recently came out with some big traffic numbers for Skype, estimating that its cross-border traffic grew approximately 41% in 2008, to 33 billion minutes —equivalent to 8% of all long-distance traffic “Skype is the world’s biggest international long distance company,” Tim Stronge, VP of research for TeleGeography, tells Network Letter. “And it may be the biggest for domestic as well.” Stronge doesn’t have any hard data on Skype in enterprise environments, but he says that enterprises are seeing its viability. This could have a major impact on Canadian carriers – especially if Skype goes it alone and has a more aggressive, single-minded, and entrepreneurial bent, something that was missing when it was part of eBay. “If things line up properly the quality on Skype can be higher than on a traditional phone connection,” says Stronge. He adds that given that Skype is just a service and doesn’t own any part of the network, with users completely reliant on the connection and an upstream internet provider, he “wouldn’t be surprised if over 90% of the costs are held by the carrier.” Given that TeleGeography data show that one-third of all Skype calls include video, the way for carriers to make money is either to license the application – a tricky proposition – or to encourage video to ramp up data charges. But, sadly, the “if you can’t beat ‘em, join ‘em,” mentality is very un-Canadian. “Things won’t change any time soon in Canada,” says Arnold. This is despite the fact that Arnold doesn’t see Skype as a long-term threat – it will just “make the pie bigger”. “I don’t understand the complacency in Canada,” says Arnold. “In 2006 at the VON conference in Toronto SkypeIn was announced with numbers in eight countries – yet Canada was not one of the countries with area codes.” SkypeIn allows a user to receive calls from conventional telephone number on their Skype line and is ideal for users who communicate with non-Skype users. You still can’t get a SkypeIn number in Canada, which means you can call out to someone on the PSTN but not receive calls to a Canadian area code. Skype also has a service called SkypeOut. It is available in Canada and allows a subscriber to call a traditional telephone number for a small fee, either through a pre-paid model or a monthly subscription plan. Nonetheless, Arnold is bullish on Skype, saying that if there is an IPO it might be “the next big opportunity to get into VoIP.” It might be. Arnold notes that when Vonage launched its VoIP service a few years ago there was a lot of anticipation, but it only lasted “about two weeks”. Warren Shiau, senior associate at Strategic Counsel in Toronto, is also optimistic about Skype’s staying power as an independent company. “Skype has its own model,” he says. “They can make it work for themselves in terms of margins and so on. I’m sure that whatever growth they have will be okay for them.” No one really knows how much traffic Skype is taking from carriers as a substitution – a vote of confidence in Skype’s voice quality – and how much is due to cost savings. One thing is for sure: if an independent Skype lands some area codes and wants to make waves in the Canadian market, it will be smarter than Vonage. One of Vonage’s many problems was that it launched its VoIP service in Canada without understanding the market or its geography. People would get phones with a 705 code in Ontario, for example, which covers a huge area, and found that their neighbours were ramping up long-distance calls because PSTN call termination was in Orillia, often hundreds of kilometres away.

Analysts ponder what an independent Skype will mean for Canada

News | April 20, 2009

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