Microsoft’s acquisition of Skype

11 May 2011

According to news first reported on GigaOm and confirmed in multiple media outlets, Microsoft will acquire Skype for a reported USD8.5 billion. The following note provides a bit of perspective on the international long-distance market, a key market for Skype, and the industry which has been most directly affected by Skype’s rapid growth.

International telephone traffic has grown at a compounded rate of approximately 13% annually over the past 20 years, reaching an estimated 413 billion minutes in 2010, and generating USD83 billion in revenue. However, traffic growth began to slow sharply in 2008, and volume increased by a modest 4% (18 billion minutes) in 2010. While the economic downturn has affected growth rates, Skype may be the key contributor to the recent slowdown.

In 2010, Skype reported 190 billion minutes of ‘on-net’ Skype-to-Skype voice and video traffic, up 68% from 113 billion minutes in 2009, and nearly three times their 2008 volume of 65.5 billion minutes. TeleGeography estimates that approximately 96 billion minutes of Skype’s on-net traffic was international, up from 57 billion minutes in 2009. ‘While Skype is not a phone company, they are by far the largest provider of cross-border voice communications,’ says TeleGeography analyst Stephan Beckert.

Skype’s traffic growth is diverging sharply from that of the international long-distance industry. TeleGeography estimates that Skype’s international traffic volume grew 39 billion minutes in 2010, more than twice the volume gain achieved by all telephone companies in the world, combined.

‘Demand for international communications is probably limitless’ notes Beckert. ‘However, Skype has taught millions of callers that they no longer need a telco to talk to friends, family, and business partners abroad.’

Not all of Skype’s growth is a loss for telcos. In addition to its free calling service, Skype offers paid services that allow subscribers to make calls to and to receive calls from regular fixed and mobile phones. These services generated 12.8 billion minutes of traffic in 2010, generating revenues for wholesale carriers and interconnection fees for the destination telcos.

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