With Microsoft, Can Skype Accelerate the Shift to VoIP?

by Trefis Team
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Microsoft (NASDAQ:MSFT) yesterday announced plans to buy Skype for around $8.5 billion. [1] While it is clear that Microsoft aims to make enterprise products more collaborative as well as support its gaming and mobile initiatives to better compete with its peers like Cisco (NASDAQ:CSCO), Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) and others, have we thought of the potential impact on telecom companies like AT&T (NYSE:T) now that Skype’s VoIP from the Microsoft platform?

Below we take a look at how this move could potentially impact telecom companies, including our $38 price estimate for A&T’s stock.

Skype Could Encourage Migration Away from Landlines

Mobile phones, along with the increased usage of VoIP services have resulted in continual declines in landline connections over the last several years. Companies like AT&T, Verizon (NYSE:VZ), Comcast (NASDAQ:CMCSA) etc. have been promoting VoIP services for some time now in order to make up for the loss in fixed line customers.

Now that Microsoft has bought Skype, we believe that it might be able to influence a faster shift from landlines to VoIP and may even pose competition to existing VoIP services provided by telecom and cable operators.

Skype is more affordable than landlines and with Microsoft’s planned integration of the service into its products like Outlook, Xbox, Kinect, Windows Phone 7 etc., this could have a notable impact on the businesses of telecom and cable operators.

This is because Microsoft’s products have widespread use. Microsoft’s move could influence consumers to gradually shift to Skype subscriptions from their landline connections in a more effective way now and compete with VoIP offerings provided by AT&T and others. If this happens, the decline in landlines could accelerate faster than our forecast for AT&T, which would lead to some downside to our price estimate.

In the included charts, you can see how this could impact AT&T’s residential and business fixed line businesses. If these forecasts both drop by about 10% from our end year forecast, they each shave off a few percent from our price estimate. If this competed more directly with AT&T’s enterprise services, the decline could be greater.

Yesterday we also published some quick take aways after the Skype announcement, including the opportunities for growth across some of Microsoft platforms. See Microsoft’s Skype Deal to Link its Products to Consumers via the Web.

See our complete analysis for AT&T.

  1. Microsoft to Acquire Skype, May 10th 2011 []
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