On The Skype Acquisition: Who Will Teach The Elephant To Retire? - InformationWeek

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9/22/2005
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On The Skype Acquisition: Who Will Teach The Elephant To Retire?

Last week's $2.6 billion purchase of Skype Technologies by eBay is noteworthy for one thing.  No, it isn't the $2.6 billion price tag (plus an additional $1.5 billion if Skype hits certain performance targets in the next few years) for a company that only had $60 million in revenue and has yet to turn a profit.

It isn't the fact that, besides eBay, Google, the News Corporation, Microsoft, and Yahoo were also said to have been interested in Skype at one time or another.

It isn't even the fact that eBay might have overpaid, or that eBay may not be the best custodian for Skype.  (EBay says it will use Skype technology to add communication channels for buyers and sellers and it may add click-to-call adverts later on. If this is the best they can do, it is truly a waste of talent and technology.)

It's simply the fact that the purchase of Skype serves notice to the telecommunications industry that voice is merely another service delivered in a data setting, and that the market for voice calling, as we know it today, is simply fading away, albeit a fast fade to black.

In ten or more years, we may look back and think of the concept of a telephone number somehow anchored to a pair of wires terminating in a telephone apparatus as rather quaint.  Even with today's fairly early Voice-over-IP technology, such as provided by Skype, I can accept phone calls from my "New York" number whereever I might be, from Los Angeles to London to Munich. 

Today, there are many different ways to place the same phone call: I could use my home telephone (landline), I could use my mobile, I could use the softphone from my company extension, or I could use a VoIP provider such as Skype or Gizmo Project.  The enterprise PBX market has already moved to open standards and Internet Protocol telephony; that leaves traditional last mile providers such as Verizon and BellSouth and mobile operators such as T-Mobile and Cingular holding the bag.  These companies have huge investments in infrastructure largely designed for voice - and for mobile operators, profits from voice services have helped make up for the failure of 3G networks to catch on as planned. 

Ironically, federal regulators are close to approving Verizon Communications' $8.5 billion purchase of MCI, and SBC Communications' $16 billion takeover of AT&T, while the $2.6 billion acquisition of Skype doesn't warrant a second glance.  It's likely that the Justice Department will require the merging companies to sell some assets, moves which they believe will preserve some level of competition for enterprise customers.  Skype, of course, has very few assets in the traditional sense and uses lines owned by others (the users' Internet connections), having only to pay for the last mile when a user calls a non-Skype user.  Moreover, Skype may be the first true international telecom company; most companies in the industry are successors of national monopolies.

It is of course no longer a question of whether VoIP will supplant the incumbent telecomms business, but rather a question of how quickly this will take place.  Millions of people place calls for free every day and the number is increasing in geometric progression.

Will the notion of a pay telephone seem patently absurd in five years' time?  We live in a time where many are probably unaware of the etymology of the word "dial" as in to dial a phone number.  Perhaps this is why Skype has attracted the attention (and money) that it did.  After all, who's going to teach the elephant to retire?

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