) yesterday announced plans to buy Skype for around $8.5 billion.
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 (
), Google (
), Apple (
) and others, have we thought of the potential impact on telecom
companies like AT&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
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 (VZ),
Comcast (CMCSA) etc. have been promoting VoIP services for some
time now in order to make up for the loss in fixed line
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
See our complete analysis for AT&T.