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European Telecom market to be hit hardest by SKYPE
Posted: 13-Jan-2005 [Source: Evaluserve]

[SKYPE has no sign-up fee or charge for Skype-to-Skype calls and is signing up customers at the rate of 80,000 a day making it a growing challenge particularly to the traditional European telecom business model.]

Gurgaon, India -- According to the latest study 'The Impact of Skype on Telecom Operators' by Evalueseve, the European Telecom market is expected to be hit the hardest due to the fast and accelerating uptake of Skype, which is by far the most successful P2P (peer-to-peer) VoiP solution available around the world today. Skype has revolutionized VoiP telephony by offering high-quality voice transmission; reducing the cost of Skype-to-Skype calls to zero, to a fraction of the current long-distance rates of Skype-to-Fixed/Mobile network calls. European operators are much more exposed due to the characteristics of European telecom markets, where calling and roaming rates, as well as the share of roaming calls, is higher, and local calls are charged by the minute. This is in contrast to the flat monthly fee prevalent in the US. Worldwide, the number of regular retail Skype users is likely to be between 140-245 million by 2008, according to the Evalueserve study. This study further projects that incumbent telecom operators, combining fixed and mobile networks, are likely to face the significant risk of permanent reduction in overall profitability by at least 22-26% and reductions in revenue by 5-10% , as a direct impact of Skype by 2008. Marc Vollenweider, CEO and President of Evalueserve said, "Not only will the VoiP solutions offered by incumbents not be able to offset their lost profits, they will also accelerate the cannibalization of existing profits. In addition to this, it is not even clear whether such VoiP solutions will be competitive against Skype." Currently, Skype has two million users in the US and 13 million users worldwide, and the company claims that it is adding 80,000 new subscribers daily.

The Evalueserve report also states that fixed-line operators, especially long-distance operators, will be much more exposed than mobile operators in a base case scenario, as a much larger share of the fixed-line traffic will be exposed to Skype. Additionally, a combination of mobile phones and Skype via Internet delivered by cable may make fixed-line access redundant, thereby saving subscription access fees. However, mobile operators will face more significant exposure, once Skype and other VoiP players offer mobile solutions by reducing roaming fees and mobile voice traffic significantly.

The profitability of high fixed-cost telecom operators is likely to be hit significantly and permanently by the following effects:

-Migration of long-distance retail customers and local loop retail customers to free Skype-to-Skype and low-price Skype-Out services

-Reduced fixed-line revenues due to reduction in long-distance calling charges, forced by Skype's pricing, to avoid loss of market share

-Migration of fixed--line customers from fixed line to a combination of cable Internet access and mobile phone

-Reduced wholesale revenues from reduced voice traffic

-Reduced revenues from future Skype and VoiP business solutions due to the same effects affecting the retail segment

The mobile revenues are expected to plunge due to:

-Reduced revenues from roaming fees due to Skype/Wifi combinations

-Reduced revenues from mobile voice traffic due to Skype/3G/GPRS services from mobile phones and hand-held devices, once such solutions are offered

Evalueserve further estimates that revenues from the enterprise segment of these telecom operators will be impacted even more strongly. Revenues resulting from customers switching to VoiP solutions might decrease by about 30-50%, and corresponding price decreases in business calling rates might further reduce revenues by about 15-30%. "Skype could be a major step towards a change in the business model of the telecom industry - a model in which basic voice services are offered free of cost and are subsidized by revenues generated from value-added services. Overall, Skype represents a massive discontinuity in the telecommunications industry, driving the convergence of voice and data much faster than originally anticipated," remarks Vollenweider.

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