Internet telephony pioneers stumble

In spite of its global popularity, internet telephony (voice-over-internet protocol, or VoIP), which is almost free for users, has not become a gold mine for its pioneers such as Skype and Vonage.

Popular online auction firm eBay, which bought Skype two years ago for $2,6-billion, affirmed that message in a costly way on Monday when it devalued the once-darling firm, knocking $1,43-billion off its value.

The accounting move was long anticipated.

”We are glad to see eBay admit that it overpaid for Skype and that much-hyped synergies have not yet materialised to any large extent,” said global financial services firm Cantor Fitzgerald. ”We have struggled with the economics of the Skype transaction relative to the financial expectations for the business.”

Analysts interviewed wondered how Skype could convert its extraordinary global popularity into hard cash and corporate revenue.

Skype saw its number of users double in the past year to 220-million. Fans as far away as China download software that enables them to make telephone calls from one computer to another anywhere in the world for free.

A problem for the company has been that few of those fans use additional for-fee services such as SkypeOut, which lets people call from computers to traditional telephones for per-minute rates.

People also prefer combination telephone, internet and cable-television deals offered by major telecommunications companies to relying on Skype or Vonage for long-distance calling, according to iSuppli analyst Steve Rego.

”Vonage has around 2,8-million paying customers and Skype 2,4-million,” Rego said. ”Customers prefer bundled services with television, telephone and internet, I really don’t know if pure specialty companies such as Skype can draw them in.”

Bundled service packages often channel telephone calls using VoIP without customers realising it, meaning multiservice providers are cashing in on the technology, Rego said.

”I don’t think pure players like Skype will make a big dent in the market,” said Forrester analyst Sally Cohen. ”They can still make money. Skype needs to think how they can monetise the base of users. The first thing that comes to mind is advertising, for example click-on ads.”

eBay’s original plan was to integrate Skype into its online auctions so, for example, sellers and buyers could call each other instantly using their computers. This course now seems to have been abandoned.

”We feel like we can do a lot more with Skype as a stand-alone VoIP provider,” said eBay spokesperson Hani Durzy.

But Skype has heavyweight competition in the online telephony arena. Google, Microsoft and Yahoo! have woven VoIP calling into their online messaging services.

Vonage, a major Skype competitor in the United States, spent a fortune promoting its cheap internet-based telephone service only to find itself in hellish straits of late. It showed a loss of $338-million in 2006 and is defending itself against accusations it violated patents owned by telecom industry giants.

Vonage stock that debuted at $17 on the stock exchange in May last year was valued less than a dollar a share on Tuesday.

Large companies are converting en masse to VoIP telephone service, but are relying on network specialists such as Cisco, Alcatel, or Nortel, which guarantee reliability and quality. — Sapa-AFP

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Laurence Benhamou
Laurence Benhamou is an AFP correspondent.

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