[Exclusive] Skype Isn't Throttling International Call Volume After All

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Okay, so let me address that headline: Yesterday I wrote a piece about how Skype was basically penning the obits for phone companies that provide long distance calls to customers. Admittedly, I had a few too many Diet Cokes at lunch and got a little too excited about saying the skies were falling for long distance service providers because, as it turns out, the situation isn't quite as dire as previously reported.

Stephan Breckert, an analyst with TeleGeography, got in touch with me to clarify the report. Contrary to my initial story, you probably won't see international long-distance providers disappear just yet. Breckert explains that the report "doesn't show a decline in the volume of international traffic—it shows a decline in the *rate of growth* of international traffic." So it's still growing, just not nearly at the rate that it once was. "That's still bad news for international service providers," Breckert continues, "since they rely on volume growth to offset steady price declines. As a result, aggregate industry revenue growth is pretty much flat now, but it's certainly not in free fall."

In fact, TeleGeography, the telecom market research firm that published the report on international call volume, actually predicts that international voice traffic will still continue to grow, "approximately 4% annually between 2011 and 2016."

As far as attributing the decline in growth rate to Skype, Breckert says that the difference between Skype and international call service providers is more akin to an "apples to watermelons" comparison: they're two separate yet similar services that can't really be squished together under the same umbrella. International phone calls are still a very regular part of communication in many parts of the world, hence the operative word "international." Placing calls across borders is a more broadly utilized service so any doomsaying predictions about the impending demise of international call service providers would be an exaggeration (*ahem*) and don't expect to hear any predictions like you may have heard about cable companies. While cable may be considered an amenity closely associated with more developed countries, people still use telephones in countries regardless of level of industrialization and they use them to call people in other countries pretty regularly. TeleGeography points out, for example, that "more than 75 percent of traffic to South America, Sub-Saharan Africa, Central Asia, and Central Europe was routed via wholesale carriers."

Reenforcing the point made above by Breckert is that the volume of growth for international phone traffic, while slowing down, still dwarfs the growth of Skype traffic, as evinced in the bar graph below.

So yeah, repeat after me: the act of making an international phone call is not going the way of the dinosaur. It may change, it may differ from region to region, but it'll still be around for the foreseeable future. Concluding their report, TeleGeography doesn't expect either service to stop growing anytime soon:

While international phone traffic growth has slowed to the low single digits, TeleGeography projects that cross-border Skype-to-Skype traffic will grow 48 percent in 2011, to approximately 145 billion minutes. The volume of international traffic routed via telcos is more than three times greater than Skype’s cross-border volumes. However, their growth rates differ dramatically: TeleGeography projects that Skype is on track to add 47 billion minutes of international traffic in 2011 more than twice as much as all the telephone companies in the world, combined. Given these immense traffic volumes, it’s difficult not to conclude that at least some of Skype’s growth is coming at the expense of traditional carriers.

In the end, people wanna stay in touch and it's likely going to be done via traditional phone calls than through services like Skype. Really, expect the two services to manage some manner of co-existence. Skype might continue to grow at the expense of less growth for international call providers, but those phone companies aren't in any way going to get hacked away by the scythe of Skype (Skythe?). So don't fret - your phones will still work when you take those jaunts to other corners of the world later this year.