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International Callers Hang Up on Telcos and Pick Up Skype

If there's ever been doubt that voice over IP (VoIP) telephony will cause traditional phone service some big problems, some recent data from research firm TeleGeography should put that to rest. Skype's international call traffic is growing at twice the number of total minutes that regulation international phone carriers see.

But the story is about more than growth rates. According to a TeleGeography press release, during 2010, Skype represented 24.7 percent of all international calling minutes. That's a real shift in business dynamics that will leave telcos with significant smaller revenues and little to no chance to reverse the trend.

Telecos did have to deal with a bad economy, which was a significant factor in the traditional voice slowdown:

One factor contributing to the slowdown is the deep recession of 2007-2009, which affected business demand for international communications and many consumers' ability to pay for international telephone calls. Economic conditions are reflected in sharply reduced calling card volumes, and in a drop in traffic from the U.S. to Central America.
However, all that may have done was reinforce the ease of using VoIP to route calls over the Internet, rather than through proprietary telephone networks. The rates are far lower -- and even hit zero when both parties to a call use the same VoIP package.

To get a sense of the change over just the last two years, in 2008, Skype had 8 percent of international voice traffic by minutes. According to TeleGeography, the growth in traditional phone traffic minutes dropped sharply from 2008 to 2009 and then stayed level in 2010:

But perhaps a clearer sign of the trend is an analysis of international call volumes:

There is no getting around the trend. In 10 years, VoIP services have taken over a significant part of international voice traffic, even before the economy upheaval of 2008 and 2009. The quality of calls is reasonably good and more than satisfactory for most purposes. And yet, to keep growing, Skype and its kin will eventually have to address two major issues:

Billing Casual users might be satisfied with paying small amounts in advance and working off their balance. But if money is left on a Skype account too long, the company pockets the sum. To grow past a certain point, VoIP providers will have to show the same billing capabilities and maturity of telephone companies.Integration For those who use landlines, VoIP means going to a computer and placing a call away from the telephone. A toll-free number that would connect a subscriber to VoIP services would offer extra value, although the VoIP provider might begin to come under local telephone regulations, which would be a disincentive.
However, even before that point, VoIP has proven itself to be one of the more disruptive Internet-enabled technologies available.


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