Facebook, Skype, And The End Of The Phone Company

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There are rumors that Skype, the Voice over Internet Protocol service, and social network Facebook may join forces. Each has hundreds of millions of members. In Facebook’s case, the number is over 500 million. Skype claims more than 400 million subscribers.

AllThingsDigital reports that “Facebook’s goal, according to sources: To mesh communications and community more tightly together and add more tools to allow users to do so.”

And, where will that leave the phone company, whether that be AT&T (NYSE: T), Verizon (NYSE: VZ), or Sprint-Nextel (NYSE: S)?

The phone companies have assumed that they can offer consumers a complete set of cellular, landline, and wire-to-the-home services at a relatively modest cost. The wireless divisions of these companies have begun to offer tiered data plans which will eventually cost some of their customers more money than they spend on service today.

A Skype/Facebook communications system will almost certainly encourage the members of Facebook to turn to Skype for voice and perhaps data service. A large number of call and video communications done through Skype are free. Facebook and Skype would clearly plan to make money on upgraded service, but this would take revenue away from the phone companies all the same.

Although there is research that the percentage of Facebook users who are over 35 is larger than might be expected, most of the users on the huge social are under 25 who are not tethered to the voice and data communications services of the past. That means that they have potentially limited loyalty to large phone companies. The threat to the telecom firms has become even more acute as Facebook users spend more time on the service through their wireless handsets.

There is a wave of customer defections which will hit the traditional telecom companies soon. It is a part of the new utilization of the internet which is driven by social connections and not time spent on search and content. The movement threatens Google (NASDAQ: GOOG) and the portals, but the threat has begun to move well beyond that.

Disruption, no matter how overused the term is, has come to the phone companies from the time that people spend on social networks and the new tools that those social networks offer.

Douglas A. McIntyre

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