Skype, or Simply Hype?

Well, no, it looks as if it’s for real, and for once it’s European. But whatever it is, or isn’t, Skype (the most popular of the Voice Over Internet – VOIP – applications) is certainly getting a lot of press coverage at the moment. James Fallows of the NYT has been kind enough to test it out for everyone:

While running, Skype sits in a little window, like an instant-messenger program, and lets you talk with other users in two ways. If the other person has Skype installed, you can talk as long as you want, free, and with sound quality that is startlingly better than that of a normal phone connection…..

You can also reach people who don’t use Skype, through a new service called SkypeOut. This allows you to dial nearly any cellular or land-line telephone number in any country and talk. Though it isn’t free, it’s cheap. Skype’s prices are in euros – its founders are Scandinavian, the main programmers are Estonian and its headquarters are in Luxembourg – and they average two or three cents a minute, at any time of day.

Meanwhile back in London Ofcom (the UK telecom industry regulator) have decided to establish the prefix “056”, which will allow phone users to switch from the existing 11-digit telephone numbers to a new Internet broadband 11-digit phone number. Stephen Carter, Ofcom’s chief executive is quoted by Reuters as saying that “”Broadband voice services are a new and emerging market. Our first task as regulator is to keep out of the way.” Good for him.

Of course in one sense Skype is the ultimate in social software, facilitating the development of a young interconnected broadband elite. Simple economics should indicate that as the marginal cost of communication drops rapidly towards zero the quantity should increase. Indeed could we be witnessing the simultaneous rise of two phenomena: densely clustered local networks supported via mobile phones, and more sparsely clustered, but economically highly interesting, global nets facilitated through a platform of broadband connectivity?

So with references to Google and E-Bay abounding the only remaining question seems to be whether Skype will become the latest in the line of new economy, increasing returns, monopolies. Their website claim that they have already provided over 21 million downloads suggests they may be. Will you be the next?

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “Skype, or Simply Hype?

  1. Working for a telecommunications company, I can tell you that this technology is both a boom and a threat to the evolution of the industry.

    You see, VoIP traffic is treated as bulk internet data, which is neither regulated or taxed (at least in the states).

    Normal voice traffic is both regulated, taxed, metered and charged. VoIP gets around all of this.

    Upfront, this seems like a boon to the consumer, except that VoIP rides over the networks that the large telecommunications companies created (companies like AT&T, Verizon, SBC, Vodafone, etc.)

    So, this “free” traffic is not generating any revenue for the companies who provide the backbone. This means that the impetus to enhance the “pipes” just isn’t there, since no revenue is being generated, and thus the capitalists of the world aren’t motivated to evolve the industry.

    This is also why you don’t see the big companies rushing headlong into this area, at least not until they can provide subscriber based services that generate money.

    Otherwise, they would just shoot themselves in the foot. If no money comes in to the companies that lay the pipe and provide the infrastructure from a service like VoIP, then why push it?

    Thus the largest push is coming from the small tech-savvy developers, and from the academic world, where not making a profit isn’t as important as “sticking it to the man”.

    So, we shall see. If VoIP does explode, it could actually do more damage than good in the short term.

    In the long-term, however, I can you tell you from first hand experience that *all* the big players have long-term plans for VoIP, but not until the mechanism is in place to generate money.

    That is, after all, the nature of capitalism.


  2. The last mile is that what requires the big money. Not the backbone. Generating revenue from the last mile isn’t that difficult so long as a big pipe is connected to it. So claims that the impetus isn’t there is a IMHO wrong. Nor will the big players find a direct way to generate money with VoIP

  3. Traveler’s comments are just FUD (Fear Uncertainity & Doubt). The backbone providers never receive revenue directly from the consumer; it has always come from the downstream networks and ISPs.

    The use of VOIP will drive the use of broadband, which will drive consumption of the bandwidth in the backbone. I pay more for use of broadband than I do for telephone service and I don’t expect that to change. There is plenty of revenue available for backbone service in this business model.

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