Light Reading

Skype Rules North American VOIP

Light Reading
News Analysis
Light Reading
6/16/2005
50%
50%

Calls using Skype Technologies SA account for nearly half of the VOIP minutes used (46.2 percent) and about 40 percent of the VOIP bandwidth used in North America, according to an analysis done by broadband management company Sandvine Inc.

That puts Skype usage ahead of Vonage Holdings Corp., Cablevision Systems Corp. (NYSE: CVC), and other popular branded VOIP offerings (see Skype Extends Its Tentacles and Does VOIP Business Add Up?). In fact, Sandvine says Skype users account for 35.8 percent of individual VOIP callers on North American networks. “So this is not like five guys who figured out they could call Slovenia 24 hours in a row; this is a mass market phenomenon,” says Sandvine’s Steve McGeown, the company’s director of product management and main architect of the research.

Sandvine says it has a unique vantage point from which to form its analysis (see Sandvine Counts 1,100 VOIP SPs). The company monitors broadband traffic in cable and DSL provider networks, including six of the 10 largest ones in North America (see Allot Strengthens Carrier Products). So it claims to be able to identify and classify the traffic coming from about 11 million of the 60 million-or-so broadband subscribers in North America.

Why does this matter? Well, now that AOL (NYSE: TWX) and Yahoo Inc. (Nasdaq: YHOO) have entered the VOIP game, and Google (Nasdaq: GOOG) is expected to follow in some way, it remains to be seen whether these recent entrants can leverage their brand names enough to approach Skype’s progress (see Yahoo Enters VOIP Fray).

McGeown sees all this data as more pressure for existing carriers to change their stripes. “Providers out there have to realize that this is a real economic threat, that they will have to figure out a way to really differentiate their services with true VOIP. Then you get into the vision for VOIP, which is integration into Outlook, voice-to-text translation, voicemail-to-email [translation], that sort of thing...

“Niklas Zennstrom -- I have a lot of respect for this guy,” McGeown says of the Skype founder. “He understood that voice is a commodity and he marketed it as such, and that’s why it came out for free, and it worked all at the same time.”

Table 1: VOIP's Leaders

VOIP Provider Paying Customers
Skype Technologies SA 1,000,000
Vonage Holdings Corp. 500,000
France Telecom SA 330,000
FastWeb SpA 300,000
Cablevision Systems Corp. 189,000
AT&T Corp. 53,000
Source: Sandvine and Point Topic


Zennstrom's economic model was based on two things, McGeown believes. Skype is all about getting users hooked on the free part and then charging for additional services like SkypeOut and video conferencing (see Skype Launches SkypeOut and Skype Signs Four Carrier Deals).

Vonage CEO Jeffrey Citron says the pricing models are different because the products themselves are different. In fact, Citron labels Skype an “ancillary service” and not a direct competitor. “Skype says it themselves, they are not a replacement for your home telephone -- they are an ancillary communication service. “What Skype does is allow you to make a cheap telephone call using your PC -- so as an ancillary communications provider, who are they impacting? They are certainly not impacting Vonage,” Citron says.

“Skype is having its own issues with growing so they will have to figure that out,” he adds.

Sandvine's McGeown believes Zennstrom’s master plan is to begin licensing the Skype software to handset manufacturers around the world. “It would be completely, utterly brilliant, because you would make a dollar on every Sony phone that ever got sold,” McGeown says.

So while Skype may be a threat to VOIP companies and wireline carriers now, it could evolve into a threat for mobile service providers.

“So you can imagine if you’re a wireless service provider how horrifying that must be when your economic model is predicated on, basically, a free phone, and you sign the customer up for two years of service,” McGeown says. “Oh great -- now the phone’s free and so is the service.”

— Mark Sullivan, Reporter, Light Reading

(9)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
aswath
50%
50%
aswath,
User Rank: Light Beer
12/5/2012 | 3:10:49 AM
re: Skype Rules North American VOIP
Shouldn't the table include Yahoo!Japan BB phone numbers? Also isn't there a difference between Skype numbers and say Vonage numbers? Vonage subscribers pay monthly and Skype number is cumulative, meaning if a subscriber bought SkypeOut credit two times, then the count is incremented by 2 (in my understanding).
verome
50%
50%
verome,
User Rank: Light Beer
12/5/2012 | 3:10:48 AM
re: Skype Rules North American VOIP

It's not easy to admit the world is changing. Vonage representative isn't the only who's trying to dismiss Skype. But it's hard to compete with something you get for free. And it works. And when you need more services, you pay for that (SkypeIn, Out and Voice Mail) only and that's it.

Isn't it exactly ten years ago when Netscape listed and gave Microsoft hard time, at least for a while? There are not many companies in the world that could attack as efficiently as Microsoft did and succeed. Carriers are not like Microsoft that would be able unite and get rid of a threat (well, you never know).

McGeown's excellent point GÇ£Oh great -- now the phoneGÇÖs free and so is the service.GÇ¥ reminds me of something: did you know that there are still some countries where it is prohibited for carriers to bundle the phone and the subscription? You buy your (GSM) phone wherever you want, walk into a carrier's retail outlet and subscribe to a network service that you use as long as you want and cancel whenever you want. It works, too.

HeavyDuty
50%
50%
HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:45 AM
re: Skype Rules North American VOIP
"Zennstrom's economic model was based on two things, McGeown believes. Skype is all about getting users hooked on the free part and then charging for additional services like SkypeOut and video conferencing..."

But what do you do when most of your customers only want to use the free stuff?

GÇ£So you can imagine if youGÇÖre a wireless service provider how horrifying that must be when your economic model is predicated on, basically, a free phone, and you sign the customer up for two years of service,GÇ¥ McGeown says. GÇ£Oh great -- now the phoneGÇÖs free and so is the service.GÇ¥

Imagine your trying to sell a business model for VoIP where you give away the service/application, but someone still has to have facilities/physical plant to get the service from here to there (try to remember that OSI layer 3 don't go nowhere except through layers 2 then 1, and vise versa), and the faciities providers bill every month, without fail.

Anybody see a problem here?
allidia
50%
50%
allidia,
User Rank: Light Beer
12/5/2012 | 3:10:44 AM
re: Skype Rules North American VOIP
What is John Malone orchestrating in Global Broadband??? Get on it Ray.
optical_man
50%
50%
optical_man,
User Rank: Light Beer
12/5/2012 | 3:10:44 AM
re: Skype Rules North American VOIP
Have to disagree w/ Vonage's CEO on one point:
"They are certainly not impacting Vonage,GÇ¥ Citron says."

Skype offers an IP to PSTN softphone called SkypeOut (out of the IP network...) for 2 cents/minute in the U.S. You pay 10 Euros up front and use your minutes.
I use it when I'm on the road. Works fine.

Vonage has a softphone as an option to your flat rate account.
Vonage's Softphone option costs $10.00/month each month, every month. You get 500 minutes then it's 3.9 cents/minute after that.

Question? What if I don't use $10.00 worth of laptop to PSTN each month? I lose money.
Skypeout's pricing plan of pay for what you use, with no "monthly charge" is a much better plan.
If Vonage would match, I would add it to my Vonage account. They are losing my incremental business, so Citron is incorrect in stating Skype is not affecting him. It is. Not much, only incrementally, but isn't that what we are all trying to build/sell? (most of us). Incremental services, for that extra buck a month.
PO
50%
50%
PO,
User Rank: Light Beer
12/5/2012 | 3:10:43 AM
re: Skype Rules North American VOIP
Does Skype conform with the FCC's pronouncements on 911 service? Or SkypeOut?

Do we need a broader taxonomy to deal with IP-only telecom (e.g. Skype, FreeWorldDialup, etc) separately from local- and long-distance replacement services (Vonage, Yak VoIP, etc)?

Regulators certainly seem to be making a distinction, at least in Canada and the U.S., among providers with and without PSTN connections. The latter are apparently not being considered as VoIP service providers per se.
zher
50%
50%
zher,
User Rank: Light Beer
12/5/2012 | 3:10:36 AM
re: Skype Rules North American VOIP
say providing IP soft phone service for existing or even furture subscribers. Thus a subscriber is able to make unlimited calls at home using the real phone, and make unlimited calls from his/her
PCs as long as it's online.
zher
50%
50%
zher,
User Rank: Light Beer
12/5/2012 | 3:10:36 AM
re: Skype Rules North American VOIP
No.
ajrele
50%
50%
ajrele,
User Rank: Light Beer
12/5/2012 | 3:10:35 AM
re: Skype Rules North American VOIP
they do...for unlimited calling for $25/month plus an extra fee for the softphone
Educational Resources
sponsor supplied content
Educational Resources Archive
From The Founder
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
Between the CEOs
CEO Chat With Level 3's Jack Waters

2|8|16   |   26:15   |   (1) comment


Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
LRTV Custom TV
The Composable Telco

2|8|16   |   24:46   |   (0) comments


Heavy Reading's Principal Analyst Caroline Chappell presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
LRTV Custom TV
Video Infographic: Validating Cisco's NFV Infrastructure

1|26|16   |   02:24   |   (1) comment


We all know that the network of the future will be virtual, but when will virtual become a reality? This video infographic covers the four key areas in which Light Reading, in partnership with EANTC, tested Cisco's NFV infrastructure: performance, reliability, multi-service capabilities and single pane of glass management.

For the full report, see

Between the CEOs
CEO Chat With Phil McKinney, CableLabs

1|22|16   |   13:36   |   (1) comment


At CES in Las Vegas, we met with Phil McKinney, CEO of CableLabs. Phil provides an update on the rollout of DOCSIS 3.1, his views on the future of open source and how consumer interest in virtual reality could affect network traffic.
Between the CEOs
Ericsson CTO on the Changing Telecom Market

1|21|16   |   10:26   |   (0) comments


At CES 2015, CTO of Ericsson, Ulf Ewaldsson, sits down with CEO of Light Reading, Steve Saunders, to discuss the changing telecom market, the new partnership with Cisco and the future of the telecom industry.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Hot Topics
Did Juniper Pay 'Peanuts' for BTI?
Mitch Wagner, West Coast Bureau Chief, Light Reading, 2/2/2016
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
Cincinnati Bell Joins Weight Watchers Club
Alan Breznick, Cable/Video Practice Leader, 2/5/2016
Vodafone: Flexible Work Policies Boost Profits
Sarah Thomas, Editorial Operations Director, 2/8/2016
WiCipedia: Faulty Feminism, Worthy Women & Peculiar Perks
Sarah Thomas, Editorial Operations Director, 2/5/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Animals with Phones
Happy Groundhogs for Technology Day! Click Here
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.