VoIP pioneer Skype today made its first bold move to capture U.S. voice market share since its acquisition by eBay. The company announced that all US and Canadian-based Skype customers can now make free SkypeOut calls to traditional landline and mobile phones in the US and Canada, eliminating the $.02/minute charges that had previously applied. (PC to PC calling has always been free.) Phone calls to other countries and within other countries still entail charges. Skype-In, which provides the ability for others to call in to a user’s phones, carries a $38/year charge.
What’s surprising is how little reaction I’ve seen to what in essence is a major competitive threat to traditional (or even cable-based VoIP) telephony services. Perhaps that’s because, as Andy Abramson points out, Skype still suffers from quality of service issues and free or not, Skype’s service isn’t viewed as serious competition.
Or perhaps this news hasn’t stirred a high-level of attention because, in the words of analyst Richard Greenfield from Pali Capital, “Skype still requires consumers to utilize their PC to make phone calls (meaning it is still not targeting the average consumer) versus utilizing consumers’ existing in-home phone infrastructure” and therefore free Skype service is “not a major negative” for leading consumer telephony providers.
But in his research note on this announcement, Greenfield speculates that the real negative impact of free SkypeOut calls hits rising VoIP providers, such as AOL, the hardest.
This is a negative datapoint for AOL as it tries to reposition AIM by adding software based VoIP. AOL has been talking about adding Skype-Out-like features to AIM since last summer and still has not formally launched it (AOL is simply moving too slow).
Greenfield also advocates that cable operators should start pricing their own VoIP services at marginal cost to capture as many voice cusotmers as quickly as possible before these free alternatives have a chance to gain steam. (Note to Richard: This won’t, um, happen.)
Free Skype-out bolsters our view that cable operators should price VoIP services far more aggressively (such as CVC has been doing) to drive the penetration of digital video and broadband, rather than trying to drive incremental voice ARPUs. Cable should price VoIP at marginal cost and try to push as many customers as possible into their triple-play of services.
Update: I must not have been looking very hard because there is a blogosphere tsunami of reaction to Skype’s news.
Cynthia Brumfield at 6:58 PM|Comments(0)
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