The bell rang for the end of the dot com boom when Time Warner paid a ridiculous price for AOL. Now today’s edition of The Economist is
calling eBay’s very expensive purchase of small-but-growing-fast Skype
this week as the beginning-of-the-end of traditional telephony. Telstra
shareholders take note.

The Economist’s cover story How the internet killed the phone business
(subscription), basically rehashes the threat VOIP (voice over internet
protocol) poses to old-fashioned telephone services. As it says in its
editorial comment:

… the rise of Skype and other VOIP services
means nothing less than the death of the traditional telephone
business, established over a century ago. Skype is merely the most
visible manifestation of a dramatic shift in the telecoms industry, as
voice calling becomes just another data service delivered via
high-speed internet connections. Skype, which has over 54m users, has
received the most attention, but other firms routing calls partially or
entirely over the internet have also signed up millions of customers.

Skype is the most visible of the many VOIP outfits
offering free or nearly free phone calls over the internet. Skype’s
biggest differentiation is that eBay announced on Monday it’s paying
US$2.6 billion for the thing, plus another US$1.5 billion if various
performance hurdles are met. As The Economist observes, that’s a vast amount to pay for a company that doesn’t make a profit and has only US$60 million in revenue.

Whether
or not eBay was carried away by the Skype auction (Rupert Murdoch and
Google also were reportedly interested), it certainly highlights
attention on the VOIP threat to the existing telephony model. But the
interesting thing about The Economist’s take is that mobile phone companies could become the biggest losers.

Read more on our website here.

Peter Fray

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