Microsoft Unlikely to Boost Rates on Skype's Premium Service

Microsoft Unlikely to Boost Rates on Skype's Premium Service
Microsoft Unlikely to Boost Rates on Skype's Premium Service

Users of Internet phone service Skype's premium VoIP service are unlikely see a rate hike in the wake Microsoft's (MSFT) $8.5 billion acquisition of the company, despite the software giant's desire to leverage its latest investment, say industry analysts. That said, Skype customers still may want to shop around for a better deal.

Skype, with its relatively inexpensive video chat and Internet phone service, faces stiff competition when it comes to the quality of phone calls and reliability, according to a Consumer Reports survey. In addition, there's uncertainty about how Microsoft will treat Skype's current customer base, analysts note.

"I doubt they'll make it more expensive to use, given only about 6% to 7% of their customers are willing to pay for it," says Irene Berlinsky, a senior research analyst with IDC. "It's not in Microsoft's best interest to make people pay more, especially since there are other cheaper calling methods."

However, Berlinsky noted, Skype's customers may be turned off if Microsoft begins to gather more information about them than they originally authorized, or if they feel their privacy is being impinged upon. It wouldn't be the first time Microsoft has been stung by such issues. Back in 2002, for example, Microsoft settled with the Federal Trade Commission over charges that it allegedly gave consumers a false sense of security in the way it handled their personal information when they used the software giant's Passport web services.

Microsoft plans to integrate Skype into its Windows smartphones, Xbox video game consoles, and email programs, and potentially other software programs, Berlinsky says.

Skype's the Biggest in VoIP, but Not the Best

Skype, which is by far the largest Internet phone service provider in the U.S., had 663 million registered users worldwide as of the end of the December quarter.

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Of those, there were 145 million average monthly connected users, 6% of whom represented Skype's average monthly paid subscribers, according to its filing with the Securities and Exchange Commission.

"Consumers can save a lot of money with Skype. It can make a significant difference on long-distance bills and overseas calls," says Stephan Beckert, vice president with telecommunications research company TeleGeography. He noted Skype's strength is in its ability to host PC-to-PC calls with greater clarity than even traditional landlines.

But others have less-than-favorable assessments of Skype's overall clarity when it comes to calls from computers to traditional landline phones or mobile phones.

In a Consumer Reports reader satisfaction survey, the magazine sized up Skype and competitors Vonage Holdings (VG),OOMA and magicJack:

  • Call Quality: OOMA and Vonage rated as average compared to other VoIP and traditional landline companies. Skype and magicJack, however, scored well below average.

  • Reliability: Again, OOMA and Vonage rated as average compared to other VoIP and traditional phone companies, while Skype and magicJack scored well below average.

  • Value: OOMA, Skype, Vonage, and magicJack all scored among the highest for nationally available phone services, compared with other phone service providers.

"Skype's low price has been its main attraction for people," says Paul Reynolds, Consumer Reports electronics editor. "Skype could raise its price after the merger, but we're also starting to see a lot of low-priced [VoIP] services out there, if not virtually free. I would imagine that Microsoft is looking at that too."

Skype charges 2.3 cents per minute for calls made to traditional landline phones or mobile phones in 30 countries, or it offers monthly subscriptions of $7.99 for calls to North America and Canada or $13.99 for North America and 40 countries. Although it lists the service as unlimited, there are certain minute and call restrictions before a higher rate kicks in.

Vonage, which only offers a monthly subscription option, charges a three-month introductory rate of $14.99 a month for calls to the U.S. and Canada, and has a similar plan that includes calls to 60 countries. Both the domestic and international calling plans also carry some use restrictions for their "unlimited" plans.

Despite Skype's low fees, OOMA ranked the highest in the Consumer Reports survey of nationally available phone services. The telephony device costs $249.99, after which users largely pay only the taxes and related fees for their calls. OOMA, however, also has restrictions on the minutes allowed, mostly intended, according to the company, to keep businesses from using its unlimited service at the household rate.

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