Skype IPO Should Make All VoIP Providers Smile

Carl Weinschenk

Last week, VoIP provider Skype announced that it will raise $100 million through an IPO. Comunicano CEO and long-time VoIP blogger Andy Abramson tells IT Business Edge blogger Carl Weinschenk that the deal, though it isn't huge in the world of corporate finance, is big news for Skype and for the VoIP industry as a whole. Most immediately, it will enable the company to begin serving businesses more aggressively, do the marketing necessary to turn free to pay customers and tackle regulatory and other outstanding concerns, Abramson predicts.


Weinschenk: Is this a big deal?
Abramson: I think it is a very big deal. I think this is one that will get a lot of interest from Wall Street. The fact is that [the deal puts] only $100 million in stock on the marketbut gives a lot of people hope. It is going to be one of these very celebrated offerings. Skype is a global brand. This will bring more attention paid to the company. It also helps them address some issues that are out there, like regulatory compliance. They are not going to be able to play the game of being the renegade as much as people are painting them. That's good for them, I think.


"There is not very much of a downside. This will be a really good bellwether of the voice 2.0 industry."

Andy Abramson
CEO, Comunicano

Weinschenk: So it is a coming-of-age type thing for Skype, to some extent.
Abramson: Telcos also try to paint Skype as the renegade. They are the mavericks and the gold miners who were out first looking to find the gold in telephone and now video. This is going to add a lot of credibility. This allows them not only to go back to existing investors, but to get access to all types of financial instruments not necessarily available to private companies. It's only $100 million. It is more what being on public market lets them do. I think it enables them to make more strategic acquisitions, which they can float with stock. You have all this stock in the treasury sitting there after doing the floatation. I could see them acquiring complementary companies and complementary technology, things like that.


Weinschenk: What kinds of technology and strategy will they go after?
Abramson: First, I think this is going to let them get deeper in the business market. It may be small business first, then enterprise business. The company will get into enterprise with voice. Skype for SIP technology will help them do that. I think they also will offer video and multi-party video conferencing. Skype offers a simplistic approach. You do not have a bunch of hurdles to go through to do a video call. I've seen reports they have video conferencing for five or six people. I wouldn't be surprised if they get into double digits. They have been building a massive scalable solution to handle that.


Weinschenk: What else will we see?
Abramson: I wouldn't be surprised to see regulatory matters, such as e911, be resolved. I think that is something that would be very well received. It would also reduce potential liability issues, and enable them to do it in a way that is more conforming with existing telecom laws around the world. I also think they will use the money to expand research and development and put money into marketing to increase users. They have half a billion people using Skype, but only 8 to 9 million users that are actually paying. I think they will pay to try to get those people to use Skype more and get more to make Skype Out calls.


Weinschenk: Do you think that this also is important for the industry as a whole?
Abramson: There is not very much of a downside. This will be a really good bellwether of the voice 2.0 industry. I think other companies will be able to use this like in NASCAR. Companies will be able to slot behind Skype and catch the break that Skype creates in traffic and jump in and sail past some of the more laggard telecommunications companies that are not moving toward the cloud. Skype is the most cloud-ready now, along with Truphone and Google. Those are the three companies that could get more involved in cloud telephony in a bigger way without breaking a sweat.


Weinschenk: This can leave the traditional telcos behind.
Abramson: Telcos have to decide how to jump from one hemisphere to the other. The telcos have a lot of sunk cost invested in hardware and a lot of circuit switched. When they forecast hundreds of millions in capital expenditures, they also are looking at run rates of seven, eight to 10 years to profitability. Until that pays back, they don't do the next thing. Telcos' investments are in the past. Very few have advanced in areas like IP telephony here in the U.S., but cable companies have. So they are losing market share.


Weinschenk: They haven't dealt with the fact that people use voice differently-and have different providers.
Abramson: For example, I receive 90 percent of my telephone calls on my computer. People call in to my Google voice number. It forwards to my soft clients like Skype, BRIA or Truphone. I talk using a headset, speaker phone or the built-in speaker in my Macintosh. I can't remember thelast time I picked up a straight phone, except in a hotel to call the concierge. There are more and more people doing that. We run an entire business and everyone talks to each other over the computer. When I am out, I use 3G.


Weinschenk: So the telcos, which were pushing IP Multimedia Subsystem as a way to move to the future, are missing the boat.
Abramson: Everyone was beating the drum of IMS, and IMS is a big non-event. Even LTE is a rehash of IMS in some ways. Companies like Skype, Google and Truphone all basically said we can leapfrog the idea of IMS to make it all work much easier in the cloud, and add services as you need them. Peer-to-peer [for instance] proved it work. The telcos fell asleep while the cable guys were catching up.


Weinschenk: The irony is that the telcos use VoIP-just not to reach directly to their customers.
Abramson: I think people forget that VoIP is in the middle of so much so often. People fail to grasp that. They don't see that the telcos have been using VoIP forever in the middle. It's there. What hasn't happened is telcos have not had commercial successes. Verizon failed with VoiceWing. AT&T pulled the plug on CallVantage, which people universally thought was the best VoIP consumer product ever. Vonage struggled to get 2.2 million subscribers. It's been stuck there for a couple of years due to churn rate. So they've flattened. The cable companies, of course, have sold VoIP until the cows come home, because it is bundled. The difference is that the connection is over an RJ-45 versus an RJ-11, and your bill is from a different provider.

Weinschenk: A new world has emerged, and the Skype deal is one sign of this.
Abramson: If you look at a map of the United States, the telco map pre-divestiture has for the most part been replaced with the cable companies' footprint. Comcast, Cablevision, Time Warner Cox, Charter -- look at where their hubs are. They all fall nicely where the old telcos were before divestiture, which now is put back together by AT&T, to everyone's chagrin. Global Cross, XO, Level 3, lots of VoIP pipe. AT&T, Verizon all have lots of VoIP pipes. I think we all are getting too hung up on being religious about the term VoIP. It's just about selling more services in a different way.

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Aug 17, 2010 11:51 AM business voip phones business voip phones  says:

This is going to be great for Skype as they shift their focus to supplying small businesses


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