Skyped by grey power!

Does Skype deal put free calls on the line?
May 11, 2011
Dana Flavelle, Business Reporter Canada’s national pension plan is among the big winners in Microsoft Corp’s $8.5 billion purchase of Skype.

But the deal has left many users of the popular low-cost Internet telephone service wondering if they’re going to get stuck paying the bill.

Microsoft said Tuesday that it has agreed to buy Skype Technologies SA in the biggest deal in the software maker’s 36-year history.

For Microsoft, it’s a game changer, designed to take it more deeply in the market for Internet and mobile phone services, where rivals Apple Inc. and Google Inc dominate.

But Microsoft’s rich offer, worth nearly three times what the Canada Pension Plan Investment Board and other investors paid just 18 months earlier, has left many Skype users wondering who’s going to foot the bill?

The pension plan board stands to make just over $1 billion on the deal, triple its original investment of $350 million on Skype.

“If Microsoft is in your retirement portfolio and if you are looking to see much needed upgrades to video and audio on Skype, the acquisition is great news,” Adam Smietanka, of Burlington, wrote in an email to The Toronto Star.

“Unfortunately, if you are a regular user of Skype looking for free calls anywhere in the world, the days of free service are over. Someone has to pay the $8.5 billion and guess who that might be,” he also wrote, adding his wife uses the service to call Europe.

Skype allows users to talk for free over their computers to other Skype members using voice, video and text messaging. It also connects users to landlines and mobile phones for a small fee.

Microsoft said it plans to integrate Skype’s software into everything from its Xbox video game system to its Windows Smartphones and Outlook email, a strategy that could help finally take Skype mainstream.

Founded in 2003 by Internet entrepreneurs Niklas Zennstrom and Janus Friis, Skype now has 170 million registered members worldwide.

Still, less than 20 per cent of Canadians use Voice over Internet Protocol (VOIP) services like Skype and rival Google Talk, according to market research firm IDC Canada.

“There’s a lot of unknowns. People aren’t aware of it. They don’t know the costs. It’s easy to pick up the phone,” IDC analyst Emily Taylor explained.

Microsoft also said it would continue to support Skype on other software platforms, allaying users’ fears it might become an exclusive Microsoft service.

Still, the purchase was greeted with a mixture of cheers and sneers among Skype users.

Some fear it could mean the death of free Internet calling, while others see it as finally giving Skype the push it needs to become a mainstream service, perhaps even challenging traditional players such as Rogers and Bell.

“This will kill the long distance call business for the network providers,” Chris Carruthers, an Ottawa-based health care consultant, predicted in an email to The Star.

Carruthers says he can already place calls anywhere, anytime from his mobile phone for $10 a month using a rival VOIP service, avoiding roaming and other charges that can add up with traditional mobile phone services.

At least one industry analyst said it’s unlikely to mean the death of free calling as prior attempts to charge for Skype’s service have simply driven customers away.

“It would be suicide for Microsoft to backtrack on the current free availability to consumers,” Carmi Levy, an independent technology analyst in London, Ontario said.

However, it could mean users will begin to see ads on the service, Levy said.

The bigger source of revenue for Microsoft is likely to come from bundling Skype with products it sells to corporations, allowing teams of workers spread across geographic regions to video-conference while working on projects, Levy explained.

Others predict Microsoft’s main goal is the booming market for cheap mobile phone service in underdeveloped countries.

It could even give traditional telephone service providers a run for their money.

Handset maker Nokia already uses Microsoft’s operating software in its phones and could add Skype to upgrade the service, said Nick Bontis, a professor of strategic management in McMaster University’s DeGroote School of Business.

“One of the implications is increased competition, which is a good thing for consumers, because it will bring down prices,” Bontis added.

No-one has yet figured out how to make money from Skype, which lost $7 million on $860 million in revenue last year, according to public filings.

Its previous owner, EBay Inc., tried unsuccessfully to marry it with its online auction service before selling a major stake to the group that includes the CPP.

Microsoft is buying Skype from eBay Inc., and a group of investors led private equity firms Silver Lake and Andreessen Horowitz and the CPP.

The pension board paid $300 million for an 11.7 per cent share of Skype directly and has another $50 million invested indirectly through a Silver Lake fund.

The Skype takeover tops Microsoft’s biggest previous acquisition, a $6 billion purchase of the online ad service aQuantive in 2007.

Microsoft said Skype will become a new business division headed by Skype CEO Tony Bates, who will report directly to Ballmer.

Although, it makes billions from its computer software Microsoft has struggled to compete for Internet-based services.

Also read:

5 ways to save on your cell phone bill

With files from Associated Press.