A couple of good points raised there, particularly with
regard to Eircom’s position. I feel the short-term
benefit they are receiving from dragging their heels on
the unbundling will come back to haunt them. In this
small island we already have two wireless broadband
providers established, as opposed to zero in the UK (A
market where there is an economy of scale which actually
justifies the start up costs).

The reason? Eircom have made it viable by squeezing every
last Euro out of the broadband market, they’ve even forced
local operators to lay fibre around Dublin, is this in
their long term advantage? I think not.

The long and short of it, is that Eircom will end up with
competition in the bandwidth provisioning market than they
need. So what’s left? Services?

Eircom have squeezed that one dry too, they’ll still
charge you 9 Euro a month for renting a phone which costs
5 if you let them, they’ll still charge you unheard of
(outside this fair isle) line rental charges, and to top
it all off, they’ll cream off what’s left in your pocket
on local /mobile /international calls.

The result? You have operators such as http://www.freespeech.ie
offering free VOIP calls ( using SIP network switching as
opposed to the poor service provided by application layer
calls provided by Skype) . You have triple play operators
like http://www.magnet.ie offering phone / broadband / tv.

Bad enough, but when you consider that technical
developments mean that you can buy hardware for 100 Euro
which gives you a small office soft switch, you have the
bandwidth, you have the services, you have all the
hardware you need, what will Eircom’s lucrative SME sector
do? Save money, first off.

So the incumbent loses it’s advantage in data transport,
and then loses it’s edge in service provision, there is no
longer any technical requirement for their
installation/expertise, what do you get?

Well, we might just get some competition.

Hallelujah!

Interesting article, hadnt thought about it in that way
before.

Just a few more comments on skype and where the industry is
heading.

First thing which is interesting about Skype is where it
was developed … Estonia… thats probably worth an
article or 2 in itself :)

I would agree with Tom’s comments but Skype have really
innovated both technically and with the business model.
Skype have developed an excellent product… it works
flawlessly, no bugs that u get in ‘free’ software, its
simple to use, in short its as easy to use and as reliable
as a phone, and its free.

Theres been technology to do this for a few years now but
Skype developed a great piece of software and built up a
user base in a very short time.
Theres loads of other outfits selling similar stuff (or
trying to give it away) but yet one company is worth
billions and has won. Some of the also rans are startups
and will struggle, some are big outfits e.g.; Microsoft’s
MSN messenger has had VoIP capability for I think a year or
so. But yet a startup won. Why?

The gap between being the best (or being first) and being
just another vendor is huge and seems to be getting bigger.
The difference may not be that big in terms of quality, it
may be just perception, but its huge in terms of reward..

Particularly in software/internet services … the winners
are Skype are on VoIP, eBay for auctions, Google on
advertising via search/email, Microsoft on Office software,
and Apple on music via iPod/iTunes.

It’s winner take all and the game is global, it doesnt
matter whether you live in Ballymun or Bangkok, you’ll
still download the same software …

Glad that you highlighted the eBay/Skype deal – noteworthy
for a number of reasons so allow me to build further on
your article.

First, the technology disruption at work here is ‘IP’ which
stands for ‘Internet Protocol’. Internet Protocol (IP) is
the method or protocol by which data is sent from one
machine (computer, phone, etc.) to another on the Internet –
think of it as the underlying communications ‘plumbing’.
It has been defined and specified by the World Wide Web
Consortium (W3C), i.e. a universally accepted de facto
standard that is not going away. Once a machine has an
IP ‘address’, in theory, it has the potential to transmit
and receive application data from any other machine on the
internet (hence, the usual guff about intelligent fridges,
cars, heart pacemakers, etc having IP addresses leading to
universal ‘connectivity’).

Second, since IP is the underlying ‘transport mechanism’ on
the internet, it is quite trivial (heresy to the techies
out there I know) to run any type of application traffic
over it. One such application is basic ‘voice’ itself,
hence the term ‘Voice over IP’ or VoIP. The technology
achievements of Skype are not significant (another heresy
to the techies) but the business model is clearly
disruptive, i.e. VoIP traffic on the internet is free of
charge. They could have charged for it (just like
newspapers can charge for online access to their content)
but decided not to apart from traffic that requires
transfer from the internet to the traditional telephone
networks (e.g. calling someone’s Eircom number from your
Skype account) – this is the revenue generating portion of
the business as you point out. Why does Skype provide
internet calls free of charge? At first glance, one needs
to look no further than the founders, Niklas Zenströmm (age
39) and Janus Friis (age 29), to understand why. These are
the same individuals who built the infamous Kazaa free
music filesharing website which was shut down
controversially when the music industry unleashed its legal
fury. Zenströmm has been quoted as saying that ‘the idea of
charging for calls belongs to the last century’. The Skype
voice business model disruption is a replica of the Kazaa
music business model disruption.

Third, the rationale for the eBay/Skype deal is indeed
dubious. There are limited synergies (using voice for
auctions, increasing geographic reach), the price is very
high (at €2.1bn the company is valuing Skype’s 54 million
users at roughly €39 per subscriber), and the competition
is increasing (Google, MSN, and Yahoo! have added VoIP
functionality to their messaging products). Personally, I
think the price tag was outrageous but Meg Whitman (CEO of
eBay) received similar criticism for the PayPal acquisition
(online payment system) and that has turned out to be a
raging success ($700m revenues in 2004) nonetheless. Time
will tell.

Fourth, I also believe that the traditional
telecommunications industry (approx. $1trillion) will be
wiped out within 10 years due to technology (IP) and
business model disruption. However, I also believe that
some of the ‘traditional’ telecom companies could be
surprise winners in the new world.

To understand why, let’s stand back and look at this from a
customer perspective. Ideally, one wants to maximise
the ‘free’ traffic portion (i.e. IP traffic) of one’s
overall telecom needs (TV, voice, music, surfing the
internet, radio, etc.). In a lot of cases of course, you
need to rely on someone’s private network (e.g. wireless
internet access unlikely for a long time outside
metropolitan areas) so you will have to pay something for
this access – but after that you will utilise ‘free’
services. For most people this means having seamless
broadband internet access from the home to the street to
the office as we go about our daily lives. This
requires ‘wireless’ local access wherever you are located
during your day (e.g. in a café, in the office, at home)
through which you can access the ‘wired’ internet so you
can communicate with anyone/anything anywhere in the world.
So who is best positioned to offer this? Clearly, it is
those telecom providers who have a ‘wireless’ (e.g. mobile)
capability and a large ‘wired’ geographic presence (in
order to move traffic from one machine to another and
access the global internet).

Maybe this is one angle explaining why Telecom Italia have
reversed their decision to flog off their mobile arm (TIM),
why BT have aggressively launched BT Mobile
and ‘Bluephone’, why every telecom executive in the US is
shaking in his/her shoes because cable companies who
already offer broadband internet, TV, radio, telephone in
the home ($29.99 per month) are now looking to
acquiring ‘wireless’ capabilities, why the rise of mobile
virtual network operators (MVNO’s) gathers pace, and why
the market puts such a premium on VoIP providers such as
Skype – it is a land grab game driven by ferocious network
effects. Finally, let’s not forget our friends in Stephen’s
Green…if they have enough courage and vision (and the
Meteor acquisition, while not justified for these reasons,
is ironically a step in the right direction), then dear old
Eircom could surprise us after all. So the ruthless purging
of ‘boring and traditional’ fixed line telecom assets
during the 90’s (granted, de-regulation driven too) may not
be so wise after all. Irony indeed.

Paul,
To your point about Skype being available in the US…if you
have internet access, you have Skype access…that’s the
universal beauty about it. You have it so happy free
calling!

Sorry for the overly lengthy thoughts but I think this was
a very significant event for the ‘digital convergence’
phenomenon.

Rgds,
Tom