Cisco's Skype Plan May Chill Telcos

NEW YORK (TheStreet) -- A year ago, Cisco(CSCO) chief John Chambers said "the way to communicate is video." Since then, Cisco has been eager to make that happen.

In a world convinced that video calling is the future, along comes Skype, liberated from eBay(EBAY) and on its way to an IPO, unless Cisco can provide a detour.

To be sure, the rumored deal for Skype would catapult Cisco into the mass market of video communications. But the overriding question is how Cisco -- one of the prime networking equipment suppliers -- would adapt to the job of global service operator.

Put it this way. Skype would make Cisco the world's largest Internet calling service and put it in direct competition with its own telco customers like AT&T(T) and Verizon(VZ), to name a few.

Clearly with Google(GOOG) putting free Net calling service on its Gmail last week, and Apple(AAPL) set to expand FaceTime its video calling service Wednesday, the so-called battle lines in telecom are starting to be redrawn.

Cisco is no doubt eager to grab Skype's massive worldwide consumer network to complement its WebX and Telepresence video conferencing services to business customers.

Cisco also has Cius, a big tablet plan to turn old-fashioned desk phones into touchscreen video consoles to rival Apple iPads in the business market.

Still, while Skype might fit Cisco's video strategy like a glove, it can't help but be seen as a serious face slap to all the phone companies that buy Cisco gear.

--Written by Scott Moritz in New York.

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