Skype Versus At&t and the Future of Telecommunications

Week 3: Case Analysis of

Skype versus AT&T and the Future of Telecommunications

Key Issues and Assumptions

This case study is about Skype, a VOIP (Voice Over Internet Protocol) company and its ability to remain profitable over time in comparison to a large company like AT&T which is an upstream Internet Service Provider (ISP). Skype is a relatively smaller company that uses the internet as the medium for users to make phone calls, in comparison to AT&T. Unlike AT&T and other large companies that are in the ‘telephone’ market, Skype is not considered part of the Telecommunications industry and is therefore not subject to the laws in the United States the govern that industry. This helped Skype to grow quite rapidly without many restrictions. Skype has grown rapidly because of the number of free services and low-cost services it has been able to offer users through their existing equipment; internet, computers and mobile devices. The company’s revenues have, however, tapered off and new strategies need to be employed in order for Skype to remain a profitable and relevant player in the VOIP market.

Analysis

Skype became as successful as it did rather quickly because it was able to utilize a low-cost provider strategy. In this strategy, the company achieved lower overall costs than rivals on its products through attract a broad spectrum of customers (Thompson, Peteraf, Gamble, and Strickland, 2011.) According to Thompson et al (2011) "A company achieves low- cost leadership when it becomes the industry’s lowest-cost provider rather than just being one of perhaps several competitors with comparatively low costs." Because Skype was able to offer most of its most used services like Skype-to-Skype user calling, video chatting and instant messaging for free, it was able to attain this low-cost leadership.

Over the years, however, other larger companies that are IPS’s have been able to rival Skype due to their ability to provide relatively low-cost, if not free, services at faster internet connection rates because they own the routers and the cables that make up the internet backbone. This is the issue of net neutrality, where there internet is not owned by any government, company or other entity, but the pieces that make it work are (Thompson, et al., 2011). As such, their customers