Entner: A quiet sigh of relief as Microsoft acquires Skype

On May 10, 2011, Microsoft acquired Skype for $8.5 billion. It is widely seen as another catch-up move by Microsoft in its battle against Google's and Apple's increasing dominance of the traditional and mobile internet. It is interesting to watch because all three companies, Apple, Google and Microsoft, are chasing the same ball. But each is playing a different game, with different rules and the score is 7-4 in the three-way race. Anyway...that's good topic for a different day.

In 2009, when Skype was on the market the last time, one of the companies that was seriously interested in purchasing Skype was a large wireless provider in the United States. The negotiations ultimately broke down because the wireless provider was unable to do what Ben Horowitz, Mark Andreessen and Silver Lake were able to do: purchase the operating company Skype from Ebay and end the intellectual property (IP) lawsuit regarding the IP claim of Skype founders Niklas Zennstrom and Janus Friis by bringing them into the organization.

Nevertheless, imagine what it would have meant if a wireless provider had acquired Skype: Instant pandemonium in the board room of every larger telecom provider in the world followed by a global reshaping of the telecom world.

The acquirer would have thrown down the gauntlet to its competitors. Some wireless providers talk about being a global competitor - while they have only customers in a dozen countries. A Skype acquisition would have created an instant global competitor with customers in every country, without a physical network but with customers nevertheless. Skype would have been on the deck of virtually every smart phone, on more than 100 million computers, bringing the operator a total of 170 million new customers. Google, Apple, and Microsoft would have become that operator's involuntary accomplice to fulfill a global vision. From a carrier's perspective, how do you compete against the competitor's voice interface on your phone, especially when the app is often already there? Blocking would have created an immediate case for a net neutrality acid test, which would have forced regulators, legislators, and courts to come clean in ways they never expected. Does net neutrality only apply for non-service providers or do the rules apply for everyone equally. Such a combination would have separated those who are serious about the concept from those for which it was merely a convenient measure to gain advantage or where it just applies to their inner Robin Hood, by changing the traditional battle lines with network operators on one side and content providers on the other.

On a 4G network, only data is transmitted. The distinction between the circuit-switched voice network and the packet-switched data network no longer exists. This acquisition would have accelerated the biggest change in voice communication since the invention of the phone. Voice calls become bits--just as streaming music, video, or application downloads are already today. While operators will probably continue to market voice and data as a bundle for consumer simplicity reasons (consumers have a enough of a hard time understanding what a megabyte is, so imagine the complete bewilderment if you throw voice bandwidth requirements per voice minute into that mix.) Sophisticated customers may actually want to purchase just a data connection and separately choose the VoIP provider, which may or may not be their data provider. This is the wireless equivalent of using your fixed internet connection and then using a VoIP provider to connect the call. Innovation could flourish by allowing customers to choose the voice quality of their call as long as the other caller also supports the same protocol and is willing to pay for the bandwidth. Some may want to use less data and sound like today, some may want to use more data and be able to hear the other party with hi-fi sound quality.

This leads us to the next question: Is net neutrality, especially when applied to VoIP providers, merely a secret sleeper agent that will force service layer disintermediation? Does this inevitably lead to operators becoming even more marginalized or do they have to develop a VoIP client to remain competitive in the future? Can they afford to just ignore the signs of the times and let another upstart just roll over them like the cable companies did with landlines when the ILECs did not have TV service to fight back? Will they just play defense and only let their own VoIP application run on their own phones or will we ultimately see full service disintermediation, where you can purchase your wireless data connectivity separately from your VoIP service? Consumers could have the choices of purchasing their voice connectivity from an operator (that may or may not also provide the physical connectivity), a VoIP provider, or a service provide that may make money through an ad-supported model.

Ultimately, one of the usual suspects, Microsoft, acquired Skype and competition continues along the previously drawn battle lines. But in the back of your head, you can always ask: What could have been if someone would have dared to be bold?

Roger Entner is the Founder and Analyst at Recon Analytics. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications.

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