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TheStreet Open House

Skype Is Killing It On Long Distance

Skype voice traffic is expected to grow by 45 billion minutes in 2010 to more than twice the volume added by all the world’s phone companies combined, according to research out today from consulting firm Telegeography. In 2009, Skype’s growth exceeded long distance voice-minute growth for the first time, as adoption of the company’s P2P VoIP technology took off. Today’s data shows Skype’s momentum is continuing to grow, which means the small portion of revenue that traditional phone companies bring in for long distance could soon be a relic, like wireline revenue and per-minute domestic calling charges.

According to the Telegeography report, international call traffic grew an estimated 4 percent in 2010, to 413 billion minutes — down from 5 percent growth in 2009, and way off from the 15-percent average growth rate shown during the previous two decades. Meanwhile, Skype has hit 102.5 billion minutes, which means one out of five voice minutes is now going to Skype! Telegeography Analyst Stephan Beckert put it best saying, “Demand for international communications remains strong, but ever more people are discovering that they can communicate without the services of a telco.” Beckert noted in an email to me, however, that the telcos aren’t losing out on huge chunks of change. He wrote:

While Skype is having a clear impact on the international voice business, that this is a small segment for most big telcos. For example, ILD [International Long Distance] accounted for about 1 percent of Verizon’s 2009 revenues, and about 0.7 percent of Telstra’s revenues. That ratio can be higher in some developing countries, but broadband penetration in these countries is also far lower, limiting the near-term impact of Skype on these markets.

Of course, Skype isn’t stopping with taking over the long-distance market; it’s also releasing video-chat services over mobiles and televisions, which could soon change the paradigm for most people, who will swap out voice calls with video chats. Our own GigaOM Pro analysts believe that video chats will account for 30 billion calls by 2015 (sub req’d). The net of all this is Skype has managed to undercut a small, but profitable, business for the phone companies, while also boosting the traffic on their networks, thanks to the higher bandwidth requirements for video calls.

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