Competition and Pricing Analysis
For New Unlimited Packages
9 April 2008
© 2008 by Skype. Commercially confidential.
Executive Summary
1.
Competitive analysis
Consumers think of Skype as competing with:
 Internet majors: Google, Microsoft, Yahoo, AOL
 VoIP pure-plays: Gizmo, Jajah, Wengo
 Not telcos and cable providers
2.
Pricing analysis
Unlimited packages are ground-breaking
 Flat-rate pricing is almost unheard of amongst internet
majors and VoIP pure-plays
 Lack of lengthy contract is unique
 Packages are significantly cheaper that everybody else
Slide 2
Three broad questions
1.
2.
3.
Who are Skype’s main competitors?
How do Skype’s new, flat-rate packages compare to the market?
What are the key trends in Skype’s various markets?
Slide 3
Three broad questions
1.
2.
3.
Who are Skype’s main competitors?
How do Skype’s new, flat-rate packages compare to the market?
What are the key trends in Skype’s various markets?
Slide 4
Skype’s view is...

We’re taking
customers from
telcos – because
comparitively we’re
much cheaper for
international calls

Our strongest
competition comes
from access
providers

Among SkypeOut
active users we are
losing to other VoIP
providers
Telcos
Access
Providers
VoIP
Slide 5
Two approaches to
identifying the relevant competitors

Supply-side approach
 Triple-play providers
 Internet blue-chips
 VoIP pure-plays

Demand-side approach
 Ask the customers!
Slide 6
Users’ experience
Supply-side analysis
reveals clusters of competition
The “true” but
supposedly cheaper
calling experience
The “true”
calling
experience
The “replacement”
calling experience
Price
Slide 7
Demand-side
methodology

In absence of consumer survey data, we used Google to tally all the
firms mentioned in the context of Skype’s competition.
 We conducted 9 searches:
 Google.com: Skype competition, Skype competitor, and with whom
does Skype compete
 Google.de: Skype konkurrenz and Skype konkurrent
 Google.fr: Skype concurrence and Skype concurrent
 Google.it: Skype concorrenza and Skype concorrente
 For each search, we looked at the top 10* results and recorded the
name of every company mentioned on the page
 Sample universe of 77 webpages, 90 companies, 207 mentions
* Discarding any duplicates
Slide 8
Demand-side analysis
shows online players are Skype’s main competition
Specifically Yahoo,
MSN, and Google
The VoIP pure-plays
to a lesser extent
Telcos and ISPs?
Not at all
Source: Primary research
Slide 9
These results consistent
across all geographies, with minor variations
Italian top 5:
Gizmo, MSN, Sony,
Yahoo, Jajah/Teleo
French top 5:
Google, Wengo,
MSN, Yahoo, Gizmo
US/UK top 5:
Yahoo, AOL, MSN,
Gizmo, Google
German top 5:
Jajah, Google,
Yahoo, ICQ, AOL
Slide 10
These results consistent
across all geographies, with minor variations
Italian top 5:
Gizmo, MSN, Sony,
Yahoo, Jajah/Teleo
French top 5:
Google, Wengo,
MSN, Yahoo, Gizmo
Nowhere do consumers associate Skype’s
competition with telcos and cable providers
US/UK top 5:
Yahoo, AOL, MSN,
Gizmo, Google
German top 5:
Jajah, Google,
Yahoo, ICQ, AOL
Slide 11
Three broad questions
1.
2.
3.
Who are Skype’s main competitors?
How do Skype’s new, flat-rate packages compare to the market?
What are the key trends in Skype’s various markets?
Slide 12
Pricing methodology
 We looked at online majors, VoIP pure-plays, and traditional telcos
in five countries:
 Online majors: AOL, Google, Microsoft, Yahoo
 VoIP pure-plays: Gizmo, Jajah, Wengo, Vonage
 France: Orange (France Telecom), Free (Iliad), Neuf Cegetel,
Alice (Telecom Italia) and Tele2
 Germany: Arcor, Deutsche Telekom, Freenet, United Internet
 Italy: Telecom Italia, Wind, Tele 2, FastWeb
 UK: BT, Virgin, TalkTalk, Tesco
 US: AT&T, BellSouth, Comcast, Verizon
 We found 12 packages offered by 6 companies that are broadly
similar to Skype Unlimited Domestic, Unlimited Europe, or
Unlimited World.
Slide 13
Flat-rate bundles
Online majors
AOL
Google
VoIP pure-plays
PAYG
Gizmo
PAYG
Deutsche
Telekom
Bundles
N/A
Jajah
PAYG
France
Telecom
Bundles
Telecom
Italia
Bundles
Tesco
Bundles
& PAYG
MSN
PAYG
Vonage
Bundles
& PAYG
Yahoo
PAYG
Wengo
PAYG
Online space is
mainly PAYG
Source: Primary research
Triple-play providers
Triple-play firms
prefer bundling
Slide 14
Flat-rate bundles:
Domestic
Firm
Plan
Price
(monthly)
Description
Tesco
Anytime UK
£5
Unlimited calls to UK landlines.
70-minute max call length.
Vonage
Residential Premium
$25
Unlimited calls, US & Canada.
Mobiles possibly excluded.
Virgin
Talk Unlimited
£19
Unlimited UK landlines. 59minute max call length.
TalkTalk
Talk3
£7.5*
Unlimited calls to UK landlines.
Skype Unlimited
Country: €3
*Includes broadband
Slide 15
Flat-rate bundles:
International
Firm
Plan
Price
(monthly)
Description
Vonage
Call Europe
$35
29 countries. Fixed only.
Arcor
International I
€4
25 countries. Fixed only.
Telecom Italia Smart Addition: Int’l
€10
22 countries. Fixed only.
TalkTalk
£10*
36 countries. Fixed only.
Talk3 International
Skype Unlimited
Europe: €4
*Includes broadband
Slide 16
Flat-rate bundles:
International
Firm
Plan
Price
(monthly)
£8.50
Description
Tesco
Anytime World
30 countries. Mobiles unclear.
Vonage
Basic World
$31
17 countries. Fixed only.
Arcor
International II
€15
25 countries. Fixed only.
TalkTalk
Talk3 Total
£14.5*
66 countries. Fixed only.
Skype Unlimited
World: €9
*Includes broadband
Slide 17
Flat-rate bundles:
The upshot
Skype
Domestic
Europe
World
€3
€4
€9
€4
€15
£10
£14.5
Arcor
TalkTalk
£7.5
Telecom
Italia
Skype’s new packages are much
cheaper than competing bundles
€10
Tesco
£5
Virgin
£19
Vonage
$25
£8.50
Skype
Domestic
Europe
World
€3
€4
€9
€4
€15
€13.10
€19.00
Arcor
$35
$31
TalkTalk
€9.83
Telecom
Italia
Source: Oanda, 5 March 2008
Exchange rates: 1.31 euro/GBP, 0.66 euro/USD
€10
Tesco
€6.55
Virgin
€24.89
Vonage
€16.50
€11.14
€23.10
€20.46
Slide 18
Three broad questions
1.
2.
3.
Who are Skype’s main competitors?
How do Skype’s new, flat-rate packages compare to the market?
What are the key trends in Skype’s various markets?
Slide 19
2006 penetration rates
(fixed/mobile connections per 100 population)
(broadband connections per 100 households)
250
40
115
51
139
104
82
B roadband
78
57
50
ly
Ita
y
Mobile
F ixed
46
G
er
m
an
ce
Fr
an
UK
0
75
59
50
da
39
na
47
Ca
50
US
49
54
58
n
150
100
38
48
pa
52
Ja
200
Source: Ofcom , “The International Communications Market 2007”
Slide 20
High variety in fixed vs.
mobile usage across countries
(monthly minutes per capita, 2006)
100%
21%
35%
75%
45%
47%
31%
49%
50%
Mobile
79%
65%
25%
53%
55%
69%
F ixed
51%
0%
UK
F rance G ermany Italy
Source: Ofcom , “The International Communications Market 2007”
S pain S weden
Slide 21
Despite mobile’s growth.
fixed-line call volume still exceeds mobile
(monthly minutes per capita, 2006)
400
117
300
113
125
200
100
58
104
126
263
223
207
140
Mobile
129
F ixed
131
0
UK
F rance G ermany
Source: Ofcom , “The International Communications Market 2007”
Italy
S pain S weden
Slide 22
Fixed vs. mobile
(percent of the population)
100%
75%
73%
61%
65%
50%
25%
0%
13%
18%
22%
13%
18%
10%
UK
F rance
G ermany
Source: Ofcom , “The International Communications Market 2007”
48%
F ixed and
mobile
F ixed only
8%
Mobile only
38%
Italy
Slide 23
PAYG rare outside Europe
Even in Europe, much regional variation
(mobile calling plans by type)
Source: Ofcom , “The International Communications Market 2007”
Slide 24
Broadband penetration
(connections per 100 population, 2006)
Source: Ofcom , “The International Communications Market 2007”
Slide 25
High variation in VoIP usage
(percent of internet users who report using VoIP, Q3 2007)
Source: Ofcom , “The International Communications Market 2007”
Slide 26
High variation in VoIP usage
(percent of internet users who report using VoIP, Q3 2007)
Within the UK, Skype
leads the pack
Source: Ofcom ,“VoIP Research Report,” June 2007
Note: UK total exceeds 16% because some consumers use multiple VoIP providers
Slide 27
Conclusions

Skype’s main competitors are not telcos and cable providers. Instead:
 Internet majors: Microsoft, Yahoo, Google, AOL
 VoIP pure-plays: Gizmo, Jajah, Wengo

Skype’s Unlimited calling packages are disruptive.
 Highly unusual amongst the internet VoIP competitors (though
commonplace for telcos and cable firms)
 Lack of lengthy contract period is unique
 Significantly cheaper than existing fare on the market

There are important national differences in phone usage and pricing.
Slide 28
Recommendations
 At present, Skype needs to focus more on its internet competitors
and less on the likes of BT and Deutsche Telekom.
 In the future, the competitive set may evolve over time. Hence:
 Skype should conduct more direct consumer research to better
understand who its competitors are and how they view Skype
versus the competition.
 Skype should start tracking consumers’ perceptions periodically
so as to understand the competitors’ movements
Slide 29
Appendix
Slide 30
The internet blue-chips
Slide 31
The internet blue-chips
Slide 32
The internet blue-chips
Slide 33
The VoIP pure-plays
Slide 34
The VoIP pure-plays
Slide 35
The access providers
Slide 36
The access providers
Slide 37
The access providers
Slide 38
The access providers
Slide 39
The Telcos:
France Telecom
Slide 40
The Telcos:
Deutsche Telekom
Slide 41
The Telcos
Slide 42