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December 8, 2005

BT Begins Skype Backlash

Filed under: ATT VoIP

U.K. carrier will use VoIP leader’s weapons to undercut the upstart: price and simplicity.

It had to happen, but to date, the backlash from traditional telecommunications carriers over the proliferation of VoIP application providers piggy-backing on their networks and competing with them has been very low-key.

But “Operation Backlash” may have begun in London with BT Group’s announcement that it is slashing its prices for voice services in half and offering free calls to 30 different countries during the holiday season.

In a surprising move, BT, the largest carrier in the United Kingdom, mentioned Skype by name in its announcement. The company said that international calls made from PCs to regular telephones are already cheaper with its BT Communicator than “with rivals such as Skype.”

To further drive home the point that the carrier is targeting Skype and other similar services, BT said it will introduce an enhanced voice over Internet offering in the spring that will be available globally and feature its enhanced sound quality.

The carrier also said it will launch its new video phones next spring, which will allow its broadband users to see each other during their conversations.

The announcement clearly targets some of the same customers targeted by Skype in its announced video-calling enhancements in its latest version of its popular software (see Skype Debuts Video Phone).

Shares of BT were up $0.34 to $38.27 in recent trading, while shares of Skype’s parent company eBay were down $0.14 to $43.33.

Unleashing the VoIP Tiger

To date, traditional carriers have offered VoIP services but have not marketed them very heavily for fear, some say, that the cheaper services will cannibalize the carrier’s higher-end and more expensive traditional calling packages.

But with this announcement, BT seems to have unleashed the tiger that the traditional carriers can use to compete against rival services such as Skype.

In the United States, there have been rumblings and statements of concern among major carriers about the emergence of services such as Skype’s, but except for a statement to that effect from AT&T CEO Edward Whitacre, most of the upset has centered on background.

A few weeks ago Mr. Whitacre complained in an article in BusinessWeek about the unfairness of traditional carriers subsidizing their competition. He suggested that companies such as Skype should pay for the portion of the carriers’ networks that they use.

The statement attracted a maelstrom of criticism, some of it highly personal. Since then the discussion of whether VoIP software providers such as Skype should be charged for the network bandwidth consumed by their software has subsided.

But BT’s announcement opens a new front in the war between traditional carriers and VoIP service providers. The carrier is fighting an open battle with Skype using Skype’s weapons: pricing and ease of use. And the carrier promises there is more to come.

In September, Skype reached a deal to be purchased by eBay for up to $4.1 billion.

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