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					                                    Skype
             The Whole World can Talk for Free
     It was late at night in February 2006, and Jonas Kjellberg, the Nordic Manager of
Skype, along with Wilhelm Lundborg and Gustaf Kellner were busy preparing the
marketing expansion strategy for Skype in the Nordic countries. Their key concern was
how to adapt Skype’s global marketing strategy to target the local smaller markets in the
Nordic Region.

      Skype had been officially born in August 2003 with the release of the first beta
version of the software. The founders Nicklas Zennstrom and Janus Friis [refer to exhibit
1 for information about the founders] built the software by leveraging two emerging
technologies, namely: peer-to-peer (P2P) software technology, and the voice-over-
internet-protocol (VOIP) technology. The marriage between these technologies resulted
in the birth of a global communications company that promised free calls to anywhere in
the world.

       With a customer base of 9.5 million users worldwide in only one year and 1.5
million users utilizing the software per day, Skype became the world’s fastest growing
service for Internet communication in a very short time. This exponential growth
attracted the attention of many established giants such as Yahoo, Google, and eBay,
until finally it was announced in September 2005 that the latter had purchased Skype for
the formidable amount of $2.6 billion in cash and stock. The deal also included another
$1.5 billion to be given to Skype in 2009 if the company was able to deliver on key
performance targets.

     This purchase gave the Skype Company a huge boost but at the same time there
was more pressure for increasing their market penetration. Jonas needed to apply the
most efficient strategy possible to attain the 100% penetration opted for. Moreover, he
was fully aware that the market in the USA was significantly different than that of the
Nordic Region, and a marketing strategy that proved successful in the USA would
probably not as be profitable in Sweden, Norway, Denmark, and Finland.

      The available market in the Nordic Region was smaller in size than its counterpart
in the USA, and even though some people in the four countries did speak multiple
languages, there was essentially no common language as is the case in the latter.
Another major difference was that companies and brand names, that Skype would need
to partner with, existed with varying presence and market shares in the different
countries of the Nordic Region. Hence, if Skype was to partner with a company that was
well established in Sweden, then there could be a chance that this company would not
have the same strong presence in Norway for example.

     These issues troubled the Skype Nordic management team and they knew that it
was essential to move quickly because the communications and internet industries were
developing at an incredible rate and competition would soon knock on the door. Jonas
stood by his desk contemplating the best plan of action. He knew that vital decisions
needed to be made, and these decisions would be based on the answers to two major
questions.


                                                                                       1
      The first question was in terms of strategy: “Should we have a country-local
approach or a whole Nordic area approach? Is it worth it in terms of time and effort to go
too local in an area of total population around 25 million?”

     The second question was in terms of partnerships: “Which type of companies
should we target in our search for partners? Should we target online, retail, or hardware
(manufacturers) partners? And what would the consequences be to each approach in
terms of branding and the Skype presence?”

     Both Gustaf and Wilhelm knew the importance of making the right decisions as fast
as possible. There were many factors to consider in terms of market study, competition,
and always keeping in mind the future potential evolution of Skype into the mobile
industry….



The Skype Phenomenon
      With 75 million registered users and over 150,000 new users downloading the
Skype program each day, Zennström’s vision of becoming “the largest and most
successful online communications company worldwide” was close at hand. The eBay
acquisition brought Skype an enormous momentum as well, but what was Skype really
all about?

       The famous quote “Being at the right place at the right time” could very well be the
answer to that question. Given the huge appetite among media and Web companies for
an Internet-telephony play and the vast availability of broadband internet; they did it so
well too, offering global telephony with great QoS (Quality of Service), and extraordinary
ease of use. Of course the zero-cost, word-of-mouth marketing was the main catalysts
for its proliferation.

     The software mainly allowed the user to call up other users who were online or
leave them a message if they were not. Apart from the simplicity of use, the Skype
software had many features ranging from the basic to the more advanced levels [the
reader is advised to refer to exhibit 2 for more information about the Skype software].

     It was clear that Skype dominated the PC to PC telephony market, but given it was
a free service and promised to be so for ever (well as long as Zennstrom would be
around), how was Skype going to ensure its financial fitness. Where would the profit
come from? As Zennstrom had pointed out, the company had relatively zero costs for
marketing and distribution.

            "Our software is spread virally. And when we have a new user, we
            have zero cost for serving that user, because they're using peer-to-
             peer software and their own bandwidth. So we have zero costs of
            getting new users and zero costs of running traffic. This is why we
             are able to provide such a superior service for free to the world."

     This was great for the consumer but what about the new owner eBay, who now
formed the “power of the three” with Paypal and their 4.1 billion dollar new Skype


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purchase? Where would their ROI come from? The answer was simple (only small
percentage are paying customers and they know that), from the SkypeIn and SkypeOut
premium services.

      SkypeIn and SkypeOut allowed the user to use the computer as a regular phone
for a small fee. SkypeIn was launched in March 2005 and this service allowed Skype
users to purchase a local phone number where he/she would be able to receive calls
from regular or mobile phones. The caller would only pay local call fees, while the
subscriber had to pay a fixed annual fee of approx $37. This service, multiplied by the 75
million users in tow, could just about match what eBay had forked out. With the
combined Skype voicemail service, users were able to even take messages from any
device when not online or otherwise indisposed.

       In addition to SkypeIn, the other service that was offered by Skype was called
SkypeOut. This service facilitated calls to non-Skype users on regular devices such as
standard land-line phones and mobile phones. Most of the first world countries operated
at a fixed 1.7 Euro Cents per minute of talk. There were four ways to charge up credit for
using the SkypeOut feature; on-line via credit card, personal check, or online services
such as PayPal, or by buying it in a package from Skype’s retail partners.

      Another feature offered by Skype was the possibility of having conference calls,
which meant that a user could talk to more than one person at the same time (with a
maximum of 5 people in one conference). The users in a Skype conference call could be
either online or offline (talking through their mobiles or regular phones). Skype allowed
users to also interact in other ways beside voice conversations, namely through file
transfers (with no size limitations), chatting, and video connections between peers.

     The code used to program Skype was kept ‘closed source’ since the beginning,
and the protocol was ‘proprietary’ which meant that there were restrictions on copying or
modifying the code. This fact triggered quite a bit of suspicion from the open source
community of programmers and drew broad criticism from software developers and the
VoIP user communities. On the flip side of the coin, Skype’s client application
programming interface did expose the network to the software developers and allowed
them to get white pages information and manage calls.

      As extended integration with other desktop applications were created, enabling for
example Skype toolbars for Outlook and Internet Explorer as well as the possibility for
users to populate their Skype contact lists from other applications as MSN, Skype
started to become evermore present in daily activities in many firms across the globe.

      Hence, the Skype management did not only focus on the individual users, but also
designed solutions for businesses. Early in 2005, Zennstrom stated that throughout the
year, the company would introduce more enterprise-oriented services. Skype made
good on this promise and became a hit with business users who obviously saw great
attraction in cost savings.

      Skype proved especially popular amongst small to medium sized businesses. It
was an ideal solution for customer service departments who could cut land-line rental
costs as well as cutting the actual cost of calling using SkypeOut. With proper
configuration (meaning it was set up so that no personal details were published), training



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and monitoring, encrypted Skype Instant Messaging and voice connections added
another low-cost tool to companies’ communications repertoire.


The Nordic Market
       Skype had definitely entered the market at the right time and place; however, the
right time differs according to the place, so what did the Nordic market look like?

Trends and developments on the Nordic markets for telecommunication
and IT

      Together with the East Asian Tigers (Hong Kong, Singapore, South Korea), the
Nordic Countries1 topped the World Economic Forum’s competitiveness rankings in
2005. The Nordic Region, consisting of Denmark, Finland, Norway, and Sweden, was
considered one of the most advanced and competitive ICT (Internet and Communication
Technology) markets in Europe and even the world. Through similarities in terms of
culture, technological development and language, these countries constituted a telecom
market that was more heterogeneous than one would actually be lead to believe. In the
following is a brief overlook at these countries and their markets.

Deregulation

      During the 90s all national Nordic telecommunication markets were liberalized in
order to introduce competition. Due to the dissimilar starting points for deregulation for
the fixed line, mobile telephony and Internet access, different results were yielded in the
different countries. The main differences were seen in pricing and preferences.

      The fixed line penetration was already high previous to the introduction of the
deregulation and it remained so. Competition in mobile telephony did on the other hand
contribute in the evolution and increased penetration of the market. [Refer to exhibits 13
and 14 for information about fixed line and mobile penetrations and outgoing traffic].

      The regulating authorities saw the legislation on competition as a tool to counteract
dominant undertakings from abusing their market power, and promote competition. It
remained to be seen if this would back-fire and worsen conditions for competition in the
long-term, since interest in investing in new infrastructure and developing new services
decreased.

      The different countries within the region had developed differently with different
regulations. If one takes Finland for instance, a tough regulatory environment combined
with fierce competition presented a difficult market for the mobile operators. Looking at
Denmark, they were the only nation of the four that had some remaining regulations left
in the form of a price limit on subscriptions.




1
 Iceland is traditionally part of the Nordic Countries; however, it is not considered in the analysis of this
case.


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Demographic and Geographic Characteristics

      There were large differences in population density [refer to exhibits 6 through 9 for
more details about population statistics] and degrees of urbanization across the Nordic
countries. Denmark, with the by far highest population density and relatively high degree
of urbanization, had the best preconditions for roll-out of competing networks. Norway’s
topography on the other hand was well suited to wireless access, and the country leads
the EU with its wireless broadband market share. Furthermore, the prevalence of rural
areas in the country had encouraged the wide use of cellular mobile systems instead of
fixed-wire systems. The same goes for Finland and Sweden even though the broadband
penetrations were slightly less than Norway.

Price Differences

       For the end user the opening of the telecom markets primarily meant lower prices
but also increased customer choice and services. The Nordic countries were all
providing services for lower than the European Average [refer to exhibit 12]; however,
price differences between the Nordic countries, were still relatively large. Average fixed
line spending, including subscription and usage, for a comparable consumption profile
was almost 40 percent higher in Finland than in Sweden, while a Norwegian medium
user of mobile telephone charges (makes 75 calls a month) was bound to spend almost
60 per cent more than his Danish counterpart with a comparable consumption profile. It
was the different degrees of competition within the respective markets, more than the
relative costs that were the cause of these regional price differences.

       International calls had also seen dramatic price reductions but there were still
significant differences in the pricing of national and international calls. Even in countries
bordering each other prices for calls from a border town to just the other side of the
border, far exceed prices for a national long-distance call.



Skype in the Nordic Market
      Skype needed to deliver on key performance areas by 2009 in order to earn the
extra $1.5 billion from the eBay deal. These performance areas included amongst
others, higher market penetration and retention rates. In the Nordic region, Jonas
Kjellberg was determined to accomplish his vision of 100% market penetration by 2009,
yet what were the possibilities of accomplishing this high market penetration?

      The Nordic Region of four separate countries had a relatively modest population, a
total of approximately 24.3 million people were divided amongst the nations.
Nonetheless, as mentioned earlier, the region was well renowned as a pioneer in terms
of technology adoption and penetration (refer to the Appendix for information about the
communication, it, and telephony markets in the Nordic Region).

     For Skype, these extremely high penetration rates, were viewed quite positively
since it could be inferred that the people living in the Nordic Region were willing to
accept and adopt new technologies. For a new technology such as Skype this provided




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an ideal environment in which to extend its reach having all the necessary requirements
for its propagation.

      As for computers, according to SSB (The Swedish Statistics Bureau) “access to
the PC is quite common in the Nordic countries”, with the Denmark population having
the highest percentage of personal computers at 84%, Sweden at 80%, Norway at 74%,
and Finland having the lowest percentage at 64% (refer to exhibit 3 for a more detailed
representation of PC penetration in the Nordic countries).

       The internet penetration and distribution followed a similar curve to the PC
penetration in the Nordic countries but the percentage was somewhat less, as not every
computer owner had an internet connection. Denmark had the highest percentage of
internet penetration at 75%, Sweden came in second at 73%, then Norway at 64%, and
finally Finland at 54% (refer to exhibit 3 for a more detailed representation of the internet
penetration in the Nordic Region).

      Internet connections varied in speed and availability, but as mentioned earlier the
preferred connection type for Skype was broadband. In 2005, the percentage of people
who had access to broadband in Denmark was 51% of the whole population which was
considered a good number. In Norway the percentage was a little less at 41%, while in
Sweden and Finland the percentages were 40% and 36% respectively (refer to exhibit 4
for a more detailed presentation of the broadband penetration in the Nordic Region).

      Concerning enterprises in the Nordic Region, which were also a target sector for
Skype, the internet penetrations were extremely high. In Finland 98% of enterprises had
access to the internet in 2005. In Denmark it was 97%, while in Sweden and Norway it
was 95% and 91% respectively. The broadband penetration in enterprises was also
quite high with Denmark leading at 82%, followed closely by Sweden and Finland at
81%, and Norway at 76% (refer to exhibit 5 for a more detailed internet penetration for
the enterprises in the Nordic Region).

     These statistics are useful for describing the market size; however, in order to have
a better idea, it is important to know also the demographic distribution (by age) of the
four concerned countries (refer to exhibits 6 to 9), and the number of people who
actually use the internet for communication such as voice calls, chat, or transferring files.

      In Sweden 85% of the internet users (by the end of 2005) communicated over the
internet among the other activities that they performed. In Denmark the percentage of
internet users that communicated over the internet was approximated to be 90%. In
Norway and Finland the corresponding percentages were 86% and 87% respectively
(refer to exhibit 10 for more detailed explanations). These percentages were quite high
and posed as positive indicators for companies such as Skype; nevertheless, the latter
was not the only company providing communication over the internet in the world. There
were many competitors and the market was divided among all of them.




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Competition
Skype versus the incumbents: The Business models

      Initially, Skype’s value proposition was adopted only by marginal customer
segments. However, the product gradually improved and expanded into more
mainstream market segments. Skype, in a very short time, started to move from the
niche product it began its life as, into the mainstream. This growing presence was
acknowledged as a pressing threat to the incumbent telecommunication companies
(Telcos). This forced them to think about what they were offering and how they were
offering it.

      While Skype incurred zero costs when adding a new customer, the Telcos still had
their nose in front when it came to value proposition. Their business and private value
added services and solutions coupled with their enormous reference base, gave them
the competitive edge.

      Looking closer at the business model elements, one could see the pros and cons
of both offerings. For the Telcos, the target customers were divided into three different
segments: national private customers, national business customers, and other Telco
carriers. On the flip side of the coin, Skype had the potential to addresses all individuals
globally that possessed a broadband Internet connection. Contrasting the customer
segments one could note that the most noticeable difference is that, while the Telcos
had a larger scope, the latter had a larger scale, i.e. global.

       The distribution channels employed, also differed. The Telcos most often relied on
traditional channels, such as their own retail stores and/or a sales force to acquire
customers and initiate a relationship with them. They invested mainly on conventional
advertising media (billboards, sponsorships, magazines etc...). On the other hand,
Skype almost entirely relied on low-cost viral marketing, their large presence in the
press, and co-branding with device manufacturers and vendors, such as Plantronics and
Logitech (which sold its headset devices bundled with Skype pre-paid call credit). The
company also increasingly aimed at bundling its product with software and products of
other companies. Looking at Customer relationships one could see that all of Skype's
customer relationships were internet based. It maintained a “ticketing system” and an
automatic frequently asked question (FAQ) system to reply to customer enquiries. In
addition, Skype relied heavily on online user communities. It hosted several forums on
its website and closely followed the discussions and voiced opinions, to improve its
value proposition. The Telcos generally preferred to maintain a call centre to respond to
their customers' questions.

     Another main difference between the two business models was the way they
handled customer payments. Skype relied exclusively on prepaid systems using credit
and debit cards and other online payment solutions such as for example PayPal (which
belongs to eBay). Alternatively, Telcos preferred and utilized common billing systems
which allowed customers more transparency at the expense of increased flexibility.

     One important difference in terms of capabilities and resources was that many
Telcos sold devices and other accessories. This meant that they had to manage
complex and costly supply chains to assure product availability.


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       In terms of activities, Telcos were mainly preoccupied by three primary areas.
These were the improvement and maintenance of their network, customer care, and
service provisioning. Skype was preoccupied by similar areas but with somewhat
different activities. Firstly, the company did not have to maintain a proprietary network
but had to take care of its software platform and manage the different versions. Similar
to the Telcos, Skype had a strong emphasis on customer care related activities and it
additionally focused intensely on growing its user base in order to increase network
externalities. Finally, like Telcos, Skype focused on developing and delivering value
added services. However in Skype’s case, unlike the Telcos, these services were mainly
built into the software.

     With respect to additional revenue sources, the Telcos were able to lease their free
network capacity out to other carriers; Skype did not have that option. The devices and
accessories market had also been breached by the Telcos. They procured the different
items and sold them on as their own. Conversely, Skype often entered into co-branding
deals with other suppliers. In this case the supplier remained the direct seller to the
customer. These partnership agreements could be viewed as more strategic in nature.

     A major dependency that Skype had was the customer's need for an internet
broadband connection from an Internet Service Provider (ISP) before the user could
actually use Skype. Therefore the proliferation of Skype depended on the penetration of
broadband internet.

       The most imposing counter advantage that Skype had over the Telcos was the free
Skype-to-Skype communication regardless of location. This was not possible for
traditional Telcos and even most VoIP providers that had to increase their network
capacity and hence infrastructure costs for every new customer.

     In terms of cost structure, while the Telcos incurred high costs to maintain their
network, Skype merely had to manage software development. Additionally, the business
administration at Skype was much cheaper because most of its customer related tasks
were automated.

How did the Telcos “view this upstart”?

       According to research done by Evalueserve, the European telecoms market was
more vulnerable to VoIP disruption. This is due to high roaming charges within the
European countries; as opposed to the same local charge over different states within the
USA. They also estimated that by 2008, the incumbents could see their revenue falling
by as much as 10 per cent because of the surge in demand for internet telephony with
profit predicted to slide by at least 22-26 per cent. “We believe it's not the big that beats
the small; it's the fast that beats the slow.” Niklas Zennström.

      The ever impending threat Skype posed globally had been received differently by
the different Telcos around the world. While some Telcos were already embracing VoIP
with open arms, for instance Cable & Wireless and Hutchison Global Communications
Ltd (HGC) in Hong Kong who both established partnerships with Skype. Other
companies had chosen to resist VoIP, until the numbers reached critical mass at least.
The initial response had been focused more on exploiting Skype's weaknesses rather



                                                                                           8
than on an actual counterattack. In some cases Telcos were actually in denial. For
instance China Telecom had attempted to completely block the service in some cities.

      The two vulnerabilities that Skype had were that not only was it not always free, it
was also not always the least expensive for its toll services. British Telecom for instance,
offered certain customers free call minutes to certain numbers. With this kind of service
from their Telcos, did they really have the urge to change?

Skype in Europe

       Early in 2006, Sandvine (a broadband network-monitoring company) released a
report stating that the Internet telephony products bundled with broadband services had
become          even        more        popular      than       third-party    products
(http://news.com.com/Bundled+VoIP+overtaking+Skype/2100-7352_3-6033721.html ).
The report found that Skype's VOIP service had been overtaken in Europe by broadband
subscription packages sold by vendors such as BT, Wanadoo and America Online.

     Bundled VoIP represented 51.2% of all VoIP calls in that same period, while Skype
accounted for 45 percent of all VoIP minutes. Vonage took less than one percent of the
market while other third-party VoIP providers represented 3.5% of all VoIP traffic, the
report said. In North America these figures stood at 54% and 14.4% respectively.

     This was in stark contrast to one year earlier when 90 percent of all VoIP minutes
had been made using Skype. While it was not Skype users making a switch, it showed
that new broadband subscribers were opting for the Broadband service provider-
branded VoIP bundled package instead of the market leader.

Other Competitors in Europe

     In the category of VOIP programs Skype was facing threats from three major
players Voipbuster, Voipcheap, and Voipstunt. These software applications were offered
by the same company. They shared the same user base, functionality but the offerings
were packaged slightly differently.

      In addition, some users of both Voipbuster and Skype stated that Voipbuster has a
better audio quality than SkypeOut for PC to landline calls. However they also agreed
Skype had superior PC to PC quality. Nevertheless, when the comparison was in terms
of cost it was evident that these alternative VoIP products were cheaper, allowing free
unlimited calls to a number of countries and a flat rate of 0.01 Euro to those others (refer
to exhibit 11). This was hard to ignore given that unlimited calls to conventional
telephones with companies such as the US company Vonage cost $25 USD per month,
and that’s just within the US.

     In terms of customer services, Skype outshined the above three rivals, where it
was literally nonexistent. Even in functionality Voipbuster providers had decided to
concentrate solely on call related functions including call-forwarding and a free inbound
number. They didn’t provide any chat or file sending interface, which on the flip side of
the coin, may have actually increased their attraction to the less technical savvy user.




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      In many cases there appeared a trend for users who opted to use both
applications. Skype for dialing friends that are online and Voipbuster for all PC to
landline calls.

      Other competitors also worth noting were produced by the kings of internet search
Google and Yahoo. Their reply to Skype came in the form of “Google Talk”, released
August 2005, and the beta version of the Yahoo IM 7.0 with VoIP to land lines added
option, released in early 2006.

     These applications offered users VoIP and instant messaging services. Google
have chosen, unlike Skype to use an open protocol, XMPP (Extensible Messaging and
Presence Protocol), for the IM part, and it encouraged the use of clients other than their
own in connecting to the Google Talk service.

      Google Talk’s functionality was limited and until early 2006 it did not yet allow the
user to make PC to phone calls. The Yahoo messenger did allow this option but the
prices were similar or even higher than those that Skype offered. Plus according to user
feedback, Skype had superior audio quality, richer functionality and a better customer
service.

      Finally, Skype also faced different types of competition from services other than
VOIP and traditional Telcos. For example, in Sweden Skype faced threats from Sveritel
and in Norway from Telespare. Both services claimed to allow users to call “Up to 65%
cheaper than other Telecom Carriers” to International numbers. These services had an
added advantage that they did not require the user to be tethered to their PC or even to
have access to the internet via a “hot zone” in order to use the service. They allowed
users to call right away, on any phone. No subscription was needed and there were no
extra fees. This innovation had great appeal for those who didn’t want to change their
behavior in order to benefit from the increased savings.



A new market entry: local or Nordic, online or
traditional retail?
      Jonas was aware of the competition and all the factors surrounding and influencing
the road upon which Skype was traversing. The simple fact was that he needed to make
everyday decisions in the blink of an eye. Decisions, which could determine whether
Skype Nordic would be able to thrive and expand, or loose ground; keeping in mind that,
creating an image takes time, effort and money, while destroying it could be done in one
slip up. And even though Skype had so far been one of the biggest news, there still was
a long way to go until their goals could be reached – to be recognized by everyone,
everywhere.

       The global management of Skype had already decided how to proceed. The new
way to go was through local market entries. The question for Jonas and his team was if
the Nordic Region should be addressed as a local market or should the approach to
locality be more specific narrowing down to each country. Together the Nordic
management team sat in the meeting room discussing.




                                                                                        10
     Jonas: “Is it really justifiable in terms of available resources and limited staff that
we have, to go too local for relatively small population countries?”

      Wilhelm: “Well, I understand where you are coming from Jonas, but if we look at
the consumer trends we will find that it might be worth it to go local. Two decades ago
the idea was simple – consumers from neighboring countries fell into the same category
in company strategies. Recently, however, more and more companies started
recognizing large differences in consumer behavior and taste depending on more than
their general geographical belonging. Consumers don’t live in one world anymore, but in
many. Earlier, it was possible to have standardized strategies, but now it is becoming
more evident that there is a need for localizing them to fit in different communities.”

      Gustaf: “I agree with you Wilhelm there are quite a number of differences between
the different Nordic countries and zooming into each local country definitely had its
advantages. The dilemma; however, is that given the size of these markets and the fact
that there are a lot of similarities as well between them, would the projected penetration
be worth the extra effort, money, and time invested? Should we go very local – country
by country – and focus on partnering with companies that are perceived as country
specific, or should we address the Nordic Region as one and partner with companies
present in all the Nordic Area – which might have varying penetrations in the local
markets.”

       Wilhelm: “Keep in mind Gustaf, that Skype’s marketing strategy has been and still
is to allow others - such as partners and customers - market our product.”

     Jonas: “Which brings up our second dilemma, namely what type of companies to
partner with? Skype has so far partnered with several companies to create an increased
customer value. One of these partners was Motorola which is a hardware manufacturer.
Their cell phones are now equipped with our Skype software and Wi-Fi support could
enable the users to use Skype from all locations with access to wireless Internet. Co-
operations like this extended Skype’s customer reach as well as increase customer
benefits; hence, we should be on the look out for similar partnerships all the time... ”

      Wilhelm: “However, if I may cut in Jonas and as you very well know, it’s not
feasible to form partnerships with everyone, so we need to choose our partners
strategically and carefully. Who do we want to associate our brand with is a very
important issue. Partnering with everyone might simply dilute our brand, so maybe
focusing on one main sector to partner with might be the better option. And given that we
are a software company would it not be logical to partner with online companies which
are available anytime the consumer wishes to process business with or through them?”

      Jonas: “Yes, it would definitely be very logical. We should however be aware that if
we are to reach 100% penetration in less than 4 years we need to be able to reach the
potential customers that do not rely or trust the internet so much. For example a lot of
older people would rather buy credit for Skype from a retailer rather than use their credit
cards online.”

     Gustaf: “The issue in my opinion is not only about trust in the internet; it is also
about the thinking and reaction process of the customer. For example, a thought like ‘I
am hungry and the fridge is empty’ creates an urge to go to the corner store to do some
grocery shopping. In different contexts, such as when realizing that the virus protection


                                                                                         11
program is out-of date; it is rather natural for the user to recognize the need for
purchasing an update and completing the transaction over the internet as opposed to
using an alternative source. Hence, Skype’s decision whether to partner with on-line or
traditional retailers would therefore be tightly connected with the customer’s way of using
Skype. Given the context we should use the most logical and efficient medium. The use
of Skype on a computer advocates in a larger extent on-line partnerships; nevertheless,
the conventional retailers, such as Pressbyrån for example, could become more
strategic partners when Skype is used on a wireless devices in the future [refer to
Appendix 2 for more information about the future of Skype on the mobile]. “

     Jonas: “A very good point Gustaf, and as you mentioned we should not forget the
potential future of our product when making these decisions. The trend is towards
making calling on Skype as easy as literally picking up the phone and dialing; in which
case, partnering with hardware manufacturers and/or retail stores might be what we
need.”

      Wilhelm: “Well there is another alternative which we should also not neglect and
that is the combination of retail and online in one company. The trend for the major
technical stores recently has been to compliment the conventional retail store with an
on-line version. Examples are stores like Siba, OnOff, El Giganten, Teknikmagasinet
and Power. This approach allows the customer the choice in order to expand the total
available market of the store.”

      Jonas: “True, these types of companies are pretty attractive yet it is nearly always
the case that purely online companies have stronger presence around the internet than
those that have their website as a compliment to their retail business. In addition, the
approaches that we have been discussing concern mainly private consumers. When
considering the corporate market, we have to be aware that Skype has grown
increasingly popular with smaller companies, but the larger ones are still quite hesitant –
mainly due to security issues - and a strong retail partner might be just what we need.”

      Gustaf: “Taking this last angle into consideration, could Skype consider
partnerships in the form of licensing agreements with companies that would customize
Skype to match a company’s security requirements? Could this be the door opener to
the big Nordic companies? And what kind of brands would Skype want to be associated
with?”

      Jonas: “All these possibilities and questions have to be measured carefully, but the
bottom line is that there needs to be fast and decisive resolutions. We are rapidly loosing
our first-mover advantage to the very low prices offered by some of our competitors;
hence, the need for a differentiation strategy and for making crucial decisions.
Gentlemen, it is time to make these decisions now….”




                                                                                        12
13
Exhibit 1: Biography of Skype People

         Nicklas Zennstrom2

    Niklas Zennström, a Swedish citizen, has a dual degree in business and MSc
Engineering Physics, computer science from Uppsala University in Sweden. He
spent his final year at University of Michigan, Ann Arbor. He started his
professional career at Tele2, when there were only 23 employees. Now the
company is the leading consumer oriented pan-European telecom operator
present in 23 countries.
    Niklas served in various business development roles including launching and
being responsible for European Internet Service Provider business get2net and
as CEO of the everyday.com portal. Niklas later co-founded and served as CEO
of KaZaA, the world’s most downloaded Internet software to date with more than
350 millions downloads. After that Niklas founded and served as CEO at Joltid, a
software company developing and marketing p2p solutions and p2p traffic
optimization technologies to companies.
    Niklas also co-founded Altnet, the world’s first secure p2p network promoting
commercial content to millions of consumers and integrating the full value chain
of promotion, distribution, and payment of digital content, including being the
worlds largest issuer of DRM licenses. Niklas’ newest venture was Skype, the
global internet telephony company based on peer-to-peer principles.

         Janus Friis3

     Janus Friis is a Danish entrepreneur best known for co-founding the file-
sharing application KaZaA and Skype, the peer-to-peer telephony application.
     Before embarking on his entrepreneurial career with Niklas, Janus worked at
the help desk of CyberCity, one of Denmark’s first ISPs. He has no formal higher
education since he dropped out of high-school before starting the job at
CyberCity. Later he worked at Tele2, the leading alternative consumer oriented
pan-European telecom operator, where he met Niklas.
     Janus and Niklas worked together at Tele2 to launch get2net, another Danish
ISP, and the portal, everyday.com.
     After this, the partners decided to leave Tele2 and co-founded Kazaa, the
company responsible for the most popular software for use with the FastTrack
file sharing network protocol. The FastTrack protocol itself is also codesigned by
Janus.
     From the success of KaZaA’s P2P technology the duo co-founded Joltid, a
software company developing and marketing P2P solutions and P2P traffic
optimization technologies to companies. Janus is also co-founder of Altnet, a
network that sells commercial music to Kazaa users.

2
    Biography adopted from http://www.wtn.net/2004/bio302.html
3
    Biography adopted from http://en.wikipedia.org/wiki/Janus_Friis


                                                                               14
      Jonas Kjellberg4

   Jonas Kjellberg has been the Managing Director for Skype since June 1,
2005. Mr. Kjellberg has extensive management experience, having previously
held such posts as Vice President Lycos Europe, Managing Director
Communities; Managing Director Campuz Mobile AB; and Managing Director
Optimal Telecom. Mr. Kjellberg is also one of the founders of Mobyson, an
established mobile service provider.




4
    Biography adopted from http://globalsummit.mobilemonday.net/speakers.php#Kjellberg


                                                                                         15
Exhibit 2: The Skype Software
     The following competencies characterize the Skype experience for the
users and the market and set the software in the lead within the VOIP domain.

    1. P2P: Skype’s definition of P2P might vary from other definitions and it is
       stated as follows: “A true P2P system, in our opinion, is one where all
       nodes in a network join together dynamically to participate in traffic
       routing-, processing- and bandwidth intensive tasks that would otherwise
       be handled by central servers.” There are a number of advantages
       gained through using decentralized P2P networks rather than having the
       traditional client-server networks. First of all, the P2P networks can scale
       indefinitely without increasing search time due to the fact that they make
       use of the processing and networking power of the end-users’ machines.
       Thus, each new user added to the network does not merely add load on
       the network, instead this user adds more processing potential and
       bandwidth, making the network self sustainable. Another great
       advantage of implementing P2P is the reduction in the cost of setting up
       the network since there is no need for the costly centralized resources.
       Thus, by decentralizing resources, second generation (2G) P2P
       networks have been able to virtually eliminate costs associated with a
       large centralized infrastructure.

    2. Firewall and NAT (Network Address Translation) Traversal: Skype
       has the ability to work behind most firewalls and gateways without the
       need for any special configurations. This is possible through the use of
       non-firewalled clients and clients on publicly routable IP addresses that
       are able to help NAT’ed nodes to communicate by routing calls. The
       security is still protected since the calls are always encrypted end-to-
       end, and the use of proxies limits the security or privacy risk. Moreover,
       only proxies with available spare resources are used so that the
       performance for these users is not affected. Skype also implements
       several new techniques in order to avoid end-user configuration of
       gateways and firewalls, “whose non-intuitive configuration settings
       typically prohibit the majority of users from communicating successfully”.

    3. Global Decentralized user directory: The conventional way of building
       networks involves the deployment and setting up of an extremely costly
       and centralized directory for the purpose of establishing a connection
       between end users in order to associate a static username and identity
       with an IP number that is likely to change. On the other hand, Skype
       relies on a ‘third generation’ P2P network technology to decentralize this
       process; hence, saving up on the costs. The implementation of the 3G-
       P2P or Global Index (GI) was necessary and represents a major
       paradigm shift in the understanding of scalable networks. The GI
       technology allows networks to communicate through the existing


                                                                                16
   supernodes in a way that enables all nodes in a network to have
   information about all available users and resources with minimum delay.

4. Intelligent Routing: Skype implements a very intelligent routing
   algorithm that serves to find the most effective path possible through
   utilizing all available resources in the network. Skype’s algorithm enables
   multiple connections to be open at the same time and dynamically
   chooses the one that is best suited at the time; thus, increasing quality
   and decreasing the delay in calls.

5. Security: As was mentioned before all calls made through Skype are
   encrypted to ensure security since everything is routed via the public
   internet.

6. Simple User Interface (UI): The Skype interface design is made so that
   it is very user friendly, so that anyone who knows how to use a Windows
   and telephone will feel quite comfortable with the program. Skype has
   also been configured to run on the following operating systems: Pocket
   PC, Linux, and Mac OS X.




                                                                           17
Exhibit 3: PC Penetration in the Nordic Countries




                                                    18
Exhibit 4: Broadband penetration in the Nordic Region




Exhibit 5: Internet penetration for the enterprises in
the Nordic Region




                                                         19
Exhibit 6: Sweden's Population by sex and age on
31/12/2005




                                                   20
Exhibit 7: Finland's Population by sex and age on
31/12/2005




                                                    21
      Exhibit 8: Norway’s Population on 01/01/2005
Sex and
        1971    1976      1981      1986      1991      1996      2001      2002      2003      2004      2005
age
Males 1 933 700 1 994 867 2 027 580 2 056 399 2 100 994 2 160 745 2 231 301 2 241 934 2 256 107 2 269 049 2 284 070

 0- 9     330 212 326 014 289 763 264 061 278 040 304 291 312 893 310 374 308 096 306 773 305 334
10-19      312 189 319 321 333 203 329 464 293 913 270 386 286 645 292 562 298 554 303 769 309 273
20-29      296 164 318 569 314 241 322 985 340 039 336 350 305 233 298 216 293 331 288 619 285 102
30-39      204 268 240 068 297 841 321 036 320 164 332 071 350 392 352 832 355 430 355 589 353 830
40-49      236 782 208 241 201 852 237 278 294 193 317 607 318 438 320 646 322 749 324 867 328 810
50-59      236 962 240 067 223 291 196 824 191 300 226 393 282 894 291 402 298 193 302 936 304 650
60-69      179 167 192 533 202 749 205 786 191 507 171 328 170 838 172 165 176 130 183 099 193 678
70-79      103 836 111 430 120 558 130 402 138 581 143 814 138 259 136 420 134 850 132 772 130 905
80-       34 120   38 624  44 082  48 563  53 257  58 505  65 709  67 317  68 774  70 625  72 488

 0- 5      202 632     189 168     161 295     156 842     172 584     187 606     186 054     183 916     181 054     179 291     178 749
 6-15      316 492     329 671     333 032     298 603     269 602     277 609     304 568     309 419     314 718     318 411     319 188
16-66     1 229 571   1 276 474   1 314 183   1 366 536   1 409 033   1 442 319   1 489 503   1 498 820   1 512 110   1 522 996   1 536 537
67-        185 005     199 554     219 070     234 418     249 775     253 211     251 176     249 779     248 225     248 351     249 596


          1 954 605 2 022 234 2 064 760 2 102 788 2 148 836 2 209 212 2 272 135 2 282 132 2 296 145 2 308 408 2 322 293
Females


0- 9      312 472     310 584     276 569     251 005     264 394     288 472     296 209     294 076     293 023     291 730     290 750
10-19     297 776     303 814     315 746     314 311     280 768     257 635     272 644     277 491     282 735     288 084     293 013
20-29     278 080     299 506     299 463     308 340     322 426     323 760     296 025     290 245     286 348     282 270     279 099
30-39     198 353     228 598     279 741     302 501     304 591     316 736     334 727     338 189     341 925     342 824     342 723
40-49     232 685     204 096     197 684     228 069     278 665     302 648     306 698     309 574     311 807     314 186     317 464
50-59     242 947     245 874     226 506     198 944     192 794     223 307     273 531     281 006     287 288     292 487     294 987
60-69     203 539     215 027     226 447     229 470     211 164     186 432     182 277     182 610     185 777     191 876     200 936
70-79     136 150     152 003     165 017     177 023     187 866     192 224     178 832     174 799     170 953     166 390     162 654
80-       52 603      62 732      77 587      93 125      106 168     117 998     131 192     134 142     136 289     138 561     140 667


0- 5      191 490     180 782     153 612     148 827     164 064     177 539     176 404     174 647     172 676     171 265     170 877
6-15      301 276     312 643     316 528     285 210     256 636     263 837     288 691     293 114     298 246     301 306     302 212
16-66     1 216 776 1 255 109 1 288 654 1 332 496 1 366 192 1 399 514 1 444 516 1 454 543 1 468 305 1 480 858 1 494 866
67-       245 063     273 700     305 966     336 255     361 944     368 322     362 524     359 828     356 918     354 979     354 338




                                                                                                                                    22
Exhibit 9: Denmark’s Population Statistics




                                             23
Exhibit 10: Internet usage trends




                                    24
Exhibit 11: Skype versus VoIPBuster for calling
landline phones in a random sample of countries,
excl. VAT, Euro

   Country                                    Skype              VoIPBuster
   USA                                        0.0170                   free*
   Canada                                     0.0170                   free*
   Brazil                                     0.0440                  0.300
   Argentina                                  0.0260                  0.010
   Great Britain                              0.0170                   free*
   France                                     0.0170                   free*
   Spain                                      0.0170                   free*
   Italy                                      0.0170                  0.010
   Austria                                    0.0170                   free*
   Germany                                    0.0170                   free*
   Poland                                     0.0170                  0.010
   Russia                                     0.0390                  0.010
   China                                      0.0170                  0.010
   Japan                                      0.0192                  0.010
   Australia                                  0.0170                   free*
   Thailand                                   0.0920                 0.0600
   India                                      0.1250                 0.1291
   Egypt                                      0.1500                 0.1612
   South-Africa                               0.0550                 0.0600

  * VoIPBuster: free means, that you've to pay EUR 1,00 or more to get free
 access to specific countries like USA, Canada, Spain, France, ... - if you don't
             pay this Euro you'll be interrupted after one minute!

N.B.: These Prices were presented in Feb 2006. They might have been changed
                                 since then.




                                                                                25
Exhibit 12: Telephone charges in Comparison with
European average




                                                   26
Exhibit 13: Fixed line and mobile networks
penetrations




                                             27
Exhibit 14: Fixed line and mobile networks outgoing
traffic




                                                      28
29
Appendix 1
Information about the Nordic Communication, IT, and
Telephony Market and Trends

Fixed line stagnation

      In the last years there had been an evident stagnation of the fixed subscriber lines
both due to saturation as well as increased competition from new market entrants,
mobile networks and broadband. Not surprisingly, this decline in new fixed network
subscriber lines resulted in a significant decline in outgoing traffic from fixed networks.
The fixed subscriber lines, including both ordinary telephone lines and ISDN subscriber
lines, reached their peak first in Finland (1997) and last in Norway (2002).

      Almost every household had at least one fixed telephone subscription, but the
situation in the past few years was changing. As prices for mobile services were
dramatically dropping all across the Nordic region due to major competition in the mobile
sector, there were customers that started considering giving up their fixed line telephone
and relying completely on mobile telephony. In some countries, such as Denmark and
Finland, the gap between fixed and mobile prices had shrunk considerably. Finland
together with Denmark and Luxemburg were the countries with the lowest mobile call
charges in Europe. Finland is at the same time the most expensive when it comes to
fixed telephony with charges well above the other Nordic countries.

     According to a survey conducted in 2004 by the International Telecommunication
Union “an increasing number of households had one or more mobile phones without
owning any fixed line. In Finland the percentage of these households reached 33%. This
trend can also be supported by the dramatic increase of outgoing traffic in mobile
networks; voice communication had to a large extent moved to mobile networks.

      However, despite significant price reductions on mobile telephony not all
consumers could gain from giving up their fixed telephone. Only if you were a customer
with modest fixed line usage or with high demand for calls to mobile phones, substituting
fixed line telephony with mobile telephony was a good alternative.

The mobile competitor

      Mobile phone penetration and growth in Sweden, Norway, Finland and Denmark
far exceeded the EU average. Mobile penetration was close to one hundred per cent
and Sweden and Norway had even surpassed the theoretical saturation point of 100%
by having users with more than just one subscription.
      Norway, reached a mature penetration level mid-2005, and had during that year a
yearly growth rate that was amongst the highest in Europe. In Sweden, the mobile
phone growth and penetration was largely driven by prepaid cards which represented
nearly half of all customers. Prepaid cards made it even easier for an individual user to



                                                                                        30
have more than one mobile service account. All this concluded to the difficulty in
estimating a saturation limit for mobile subscriptions.

      With fixed line operators struggling for market shares and revenues, future
developments in the sector will depend on a number of factors, including the
development of new technologies, such as converged fixed-mobile products or other
bundled services, such as TV over ADSL. Another important factor is the ability of
mobile networks to provide high-speed Internet access to a comparable price and
quality. While many mobile operators have focused increasingly on non-voice services to
enhance their revenue, voice services still account for the lion’s share of revenues. Even
though available in Sweden and in Finland since the millennium, mobile Internet services
over 3G, WAP and GPRS have had a slow take-up. While the technology is already
available, users have encountered a number of barriers such as non user-friendly
devices, complicated billing systems and limited network coverage amongst others.
However, in 2003, Sweden, Finland and Norway were already among the top ten
countries with the highest percentage of the population using a mobile phone to access
the Internet, and it was growing. In 2005 the Danish mobile market was characterized by
not only high penetration levels in voice service, but also data services including WAP
and GPRS.

Internet and Broadband

      In the last years active promotions of broadband connections in the Nordic
countries, had resulted in a significant rise in xDSL based Internet connections. At time
of writing the major part of broadband Internet connections relied on cable modem or
ADSL that used existing fixed lines. By taking advantage of broadband and combining it
with constant fixed line phone calls, the phone companies could increase their revenue
and in that way make up for the increased competition and lower mark-ups. Cross
border competition had also largely increased with operators and companies such as
Telenor, TeliaSonera and Tele2 being present in more than one of the countries in
question.

      And with competition comes lower prices and higher access speeds. Sweden’s
price fell by almost 100 percent in just one year. In Denmark the competition had driven
growth, as the broadband prices were relatively high in the country. The high prices
could possibly be explained by the fact that the users with a shared telephone and
broadband connection pay twice at the margin to rent the raw copper. A change in price
regulations would avoid this.

     Denmark, Norway, Sweden and Finland had one of the most developed Internet
and broadband markets in the EU; the levels of broadband penetration were amongst
the highest in Europe. In the two years, from 2003 to 2005, the share of the Danish
households having broadband increased from 25 to 51 per cent. Even Finland, despite
the country’s fragmented take-up of new fixed-line technologies such as DSL and
regional variation, had similar to its neighbor Denmark, one of the highest broadband
penetration rates in Europe. The country had nevertheless an extensive cable network in
urban areas and approximately 63,000 Finnish households had broadband connection in
2003 increased to over 2 100 000 households in 2004; 34 times high as in 2003. The
same picture applies to all the other Nordic countries. The Swedish households with
broadband as well as the Norwegian reached 41% and 40% respectively in 2005, which
was twice the EU average. In Sweden the number of regular Internet users was edging


                                                                                       31
towards 6, 6 million Swedes, or 80% of the population, making the country one of the
most ‘online nations’ in Europe. Sweden’s Internet market is migrating rapidly from dial-
up to various modes of broadband access.

      Although given an increased promotion in most countries in the last couple of
years, the use of newer broadband technologies such as wireless networks, were still
quite insignificant. A number of WLAN hotspots were launched in 2002. In Finland
WLAN had limited presence. In Sweden however, the broadband market was not only
characterized by high levels of DSL, cable modem and satellite, but also fixed wireless
adoption. Norway was similar to Sweden in this respect. In 2007 it was predicted that
Wi-Max would have a strong presence in Europe. The aim was to have Wi-Max
coverage in 100 of the largest cities, of these 5 to 10 were to be Swedish based.




                                                                                      32
Appendix 2
The Future5 of Skype, from PC and beyond...
     Initially, in order to use Skype, customers had to remain tethered to their PC.
However this is no longer the case. Skype has plans for a giant leap, expanding its
catchments to encompass mobile devices too, freeing itself from a niche category.

     It is reaching out to the familiar using phone equipment such as personal devices
and mobile phones. In order to expedite the process Skype has published a set of
technical instructions that allow phone manufacturers to build the service into their
devices that will enable the phones to work on Skype's inexpensive online network.

     One of the world’s leading mobile phone providers Motorola has entered a deal
with Skype to create Internet phone software to allow users to use high speed Wi-Fi
networks to utilize Skype’s service.

      Another big-name manufacturer on the list is Siemens, which has launched a
dongle that runs Skype on Siemens' DECT phones. The device plugs into a PC,
communicates with the DECT base station and routes Skype calls over the Internet
instead of the phone system. The Gigaset M34 USB adapter allows the Siemens phones
to access features such as free calls to Skype users, buddy lists and conference calling.

     In addition, Netgear has created what has been dubbed as “basically a Skype cell
phone”. It connects to any wireless network, letting users make Skype calls completely
unconnected to a PC or phone line.

      Also last year Skype entered an agreement with RTX Telecom to develop a line of
cordless phones that allow users to connect the cordless phone to a normal socket and
use it as a normal phone. It also has a USB connection to the computer, which runs
Skype. When you push a designated button on the handset, you can use Skype to make
a VOIP call.

     Also PocketSkype has been launched allowing users to make voice calls using a
Wi-Fi-enabled Microsoft PocketPC handheld computer. The program allows all of the
benefits available to PC users including free Skype-to-Skype worldwide calling to any
Skype user, the ability to participate in free Skype conference calling, instant messaging,
access to a global decentralized directory, online presence and contact lists.

      Furthermore, there exists a global network of agents selling SkypeOut ‘top-up’
cards and hardware. One example is the dualphone. This is a 2-in-1 cordless telephone
that can be connected to a normal telephone socket and a USB port on a PC. It can
work on the regular PSTN or the Skype network. It also boasts some attractive features
which allow you to see who’s online with one push of a button and set your profile to
busy, away, “out to lunch” etc.

5
    This Appendix is written based on the events occurring in the first quarter of 2006.


                                                                                           33
      These further services and advancements help Skype look more and more like “the
most successful communication company worldwide” they want to be. It is "The kind of
stuff (that) tends to generate some extreme buzz - and credibility that extends far
beyond teenagers and hackers". It answers the critics that say it is no more than an
international phone card replacement and brings Skype further into the mainstream.

     However Zenstrom has pointed out that they had no intention of completely
replacing the traditional telephone system Alexander Graham Bell had conceived two
centuries earlier. He is quoted as saying, ”Just as e-mail is free but people still pay for
(and use) the fax we believe that voice calls using Skype's peer-to peer software is an
enhanced complement to other ordinary telephones”.

VOIP Threat to the mobile industry

     Jerome Buvat, a consultant in Capgemini's C4 research unit suggests that "VoIP
over WiFi poses a significant threat to traditional mobile revenues in the coming years.
100 million WiFi-enabled mobile handsets will be sold worldwide in 2008, up from just
113,000 last year. That is close to 5% of the expected 2 billion global mobile subs base.

      Even with conservative estimates, users can save about “24% on their total mobile
bills by switching to VoIP in locations covered by Wi-Fi, after accounting for the
additional cost of the VoIP subscription", Buvat also points out.

      Buvat says that if 35% of an estimated 35 million wireless LAN users in 2008 get
into the VoIP habit, then that will cost mobile operators 1.52% of their revenues in the
consumer sector, amounting to €1,286 million. But the real pain will be in the business
segment, where Capgemini estimates operators could lose as much as €4,471 million,
or 5.27% of revenues.

Skype doing their part

      There is a company in the US called iSkoot which is using Skype to work with
carriers not around them. Currently billions of minutes are taking place on the PC to PC
network, none of that is manifesting any airtime for the carriers.

      iSkoot extends the reach of PC Calling by allowing users to make and receive PC
Calls using only their regular cell phones. It automatically forwards Internet phone calls
from a user’s PC to any phone and vice versa. No special hardware is required because
you use your mobile phone. You don't need a broadband connection or WiFi. All you
need is the free iSkoot software, a mobile calling plan with a data service subscription
and a valid Skype login. Currently, you can call your Skype contacts at the push of a
button, or make low-cost long distance and international calls using SkypeOut™ – all on
your mobile phone. Through this service a minute of PC to PC connectivity that would go
on between two PCs all of a sudden now turns into airtime minutes for the carriers.

      "We've gotten some very strong encouragement from the carriers, who see Skype-
type services as a very strong value-added for their customers, and a way for them to go
after a target audience with a differentiated product."



                                                                                        34
Not all are happy with Skype

      Despite the reams of positive hype Skype has its doubters. There is a welter of
opinion warning users against Skype, slamming it for offering weak defenses against
hackers and bypassing corporate firewalls, for being susceptible to denial of service
attacks and also generally being prone to virus attack.

       The attacks on Skype and VoIP in general, are being led by research firm Info-
Tech, which is calling for businesses to impose an outright ban of Skype. “The bottom
line is that even a mediocre hacker could take advantage of Skype’s vulnerability,” says
Info-Tech’s senior research analyst Ross Armstrong.

      There is also a U.S. service provider adopting new technology touted by Verso
Technologies, Inc., as a “Skype-blocking” system. They justify the blocking of services
like Skype, because they take up so much bandwidth without providing benefits to the
providers.

      Their system enables blocking of Skype or other peer-to-peer traffic from a service
provider’s network. Alternatively it can be used to monitor traffic if the service provider
would like to charge for use of their network by Skype users. This could be the cause of
great pain to the service that was built on, for one part, its zero-cost.




                                                                                        35

				
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