Skype Vs Att and the Future of Telecommunications

Skype vs ATT and the Future of Telecommunications

Executive Summary

The competition in the Voice over Internet Protocol industry has been growing for years. VoIP companies have seen a decent growth in users since 2004, when many high profile traditional phone companies began charging seemingly exorbitant prices for the use of their cellular networks. Instead of operating through a cellular network or over a land line connection, VoIP uses the internet to send voice communications, allowing consumers to make phone calls using equipment and channels that they already pay a fee for. This allows these same consumers to eliminate their land line and/or wireless phone providers, and ultimately save a lot of money over the course of a given year.

The industry is expected to realize further and more rapid growth going forward, as growth for the previous decade reached almost 150%, earning upwards of $40 billion. Despite this growth, the industry remains only about 5% of telecommunications market, with the market still being dominated by large companies like Comcast, Cox Communications, and Verizon. This hasn't stopped some analysts from making bold predictions, with some indicating that by the end of the current decade, nearly half of all calls from mobile devices will be made using a VoIP method.

Analysis

Traditional telephone communication companies utilize Public Switched Telephone Networks, or PSTN's to ferry caller signals. These networks are expensive, and the cost to use and maintain these networks is passed down to consumers, resulting in high monthly or yearly phone bills. But IP based networks are much cheaper to operate, and do not require as much maintenance. This is why companies like Vonage and Skype have targeted them as their bases of operations. VoIP companies can offer free peer to peer calls, or very cheap long distance calls, while traditional operators must charge higher fees.

The Telecommunications Act, passed in 1996, placed regulations on the telecommunications industry that drove up the costs associated with entering the industry and doing regular business. VoIP providers, since they utilize networks that were already in place, were classified as "Information Service Providers," and were therefore not subject to any of the regulations put for in the Telecommunications Act. This has made barriers to entry into the VoIP industry significantly lower than those in the traditional Telecommunications market.

Evaluation

The current strategy at Skype is to release a subscription package that is centered around corporate use. These packages would also offer tools for managers to use during