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Big eBay Users Shun Skype

"People believe that the U.S. market will show some signs of deceleration next year and that international markets such as China won't accelerate fast enough to make up for it," says Martin Pyykkonen, an analyst with Hoefer & Arnett who rates eBay shares reduce and doesn't own them.

Skype, which was founded in 2002, wasn't profitable when eBay purchased it and will dilute the company's earnings for the next two years.

"There really is no obvious connection between the two businesses," said Darren Chervitz, director of research for New York-based Jacob Asset Management, which owns shares of eBay and TheStreet.com (TSCM), publisher of this Web site. "Skype may end of up being a valuable business, but I am not 100% sure it will be because eBay owns them."

With users in 225 countries and territories, Skype has developed a loyal following with very little advertising. Skype claims that its service is the fastest-growing communications application, adding more than 150,000 users per day. It has been downloaded more than 212 million times, according to Skype's Web site.

Skype may help eBay compete against rivals such as Google, which is testing an Internet phone calling system called Google Talk. Cable companies including Comcast (CMCSA) and Time Warner (TWX) also have entered the so-called voice over Internet protocol phone market.

TeleGeography estimates that the number of U.S. VoIP subscribers rose 400% from a year ago in the third quarter to 3.6 million. Revenue rose 473% to $304 million.

Though the gains are impressive, they still represent a small fraction of the overall telecommunications market and many users show no interest in changing from conventional phone service, says Maribel Lopez, an analyst with Forrester Research, who follows the Internet phone market.

"At this point, nobody in the VoIP industry has made a good solid case for the value, and the acquisition of Skype by eBay complicates matters," she says.

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