WORK CASE 15
Case Study 15
Bus5480 Strategic Management Professor: Dr. Uchenna Nwabueze
| Skype versus AT&T and the Future of Telecommunications
Prepared by: James Whetsel
This report was written to analyze the competition among the Voice-over Internet Protocol (VoIP) industry segment, especially as it relates to the relationship between Skype and AT&T and the competition between the VoIP market and the land line market. In analyzing this segment we found that VoIP is a growing industry in what has historically been predominately a land line telecommunication company such as AT&T. The industry segment is faced with a rivalry type competitive market that is currently being influenced by federal government through the Federal Communications Commission (FCC). This agency is considering a new law (Network Neutrality) on the websites that would decrease the power of big telecommunications companies like AT&T. The segment may feel continued pressure from substitutes in the form of other retail segments, but this should not have a strong effect on the over-all competition within the industry. The biggest difference between the competitors was that AT&T used traditional telephone, is run through a public switched telephone network (PSTN) and was much more expensive. Skype offered its customers VoIP, which, defined simply, was the transmission of voice traffic over IP-based networks. In other words, it was telephone via an Internet connection. VoIP is expected to show constantly increasing growth rates in the near future. According to a report by Infonetics Research, the global VoIP services market had reached $15.8 billion in 2006, an increase of 66 percent over 2005, and was on track to triple to $48.9 billion by the end of 2010. Projected growth for the decade was in the area of 145-150 percent. However, VoIP’s market share in the overall global telecommunications market was still minimal. Led by a few major competing companies such as Comcast, Vonage, Time Warner, and Cox Communications, the telecom industry was worth more than $1 trillion in 2010. With a roughly 5 percent market share by the end of 2010, VoIP was still a small competitor in the industry. A major opportunity for VoIP providers was to capitalize on the cellular market. Experts predicted that, by 2019, half of all mobile calls would be over IP networks. The IP connections would be available through VoIP applications that ran through a cellular device. Mobile VoIP applications are expected to reach 278 million users, generating a $32.2 billion profit. Along with the notion that consumers would increasingly look at expanded VoIP services as a motivator for adoption, many experts hinted at the idea that the growth of Internet telephony technologies would signal the demise of the PSTN.
It was March 10th 1876 when Alexander Graham Bell made the first telephone call to his assistant Thomas Watson1, his exact words being: “Mr. Watson - come here - I want to see you.”
Today, we take basic telephony for granted, and it is priced like water or electricity. In the midst of the war for market share in a nearly mature telephony market, a tiny company located in Luxemburg began the process of revolutionizing the traditional view of what Alexander Graham Bell began two centuries ago. The name of the company was Skype, and by 2004 the industry was abuzz with what could potentially disrupt its collective long-held business model. Skype had successfully fused peer-to-peer computing (P2P) and voice-over-Internet-protocol (VoIP) to create a new standard for telecommunications.
One year earlier, on August 29th 2003, Niklas Zennström and Janus Friis had released the Beta/test version of Skype, touted as “the free Internet telephone that just works.”
What are the dominant economic characteristics of the VoIP Industry The biggest difference is that traditional telephone...
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