Telefonica has acquired VoIP provider Jajah, continuing the consolidation trend in the sector. Microsoft already bought Tellme, BT acquired Ribbit, Google took over GrandCentral and KPN is buying out the minority shareholders in iBasis. In addition, eBay sold a majority stake in Skype to Silver Lake Partners, which also has a stake in Avaya, while Skype and Avaya have started talks on working together. Another hardware manufacturer, Nortel, has received an early bid for its VoIP assets, from Genband.
The trend shows newcomers slowly but surly losing their independence by joining larger groups. The latest takeover, Telefonica's acquisition of Jajah, is perhaps the most remarkable in that sense, as Jajah was originally set up to avoid the high international tariffs charged by the incumbents. However, Google and Skype are still maintaining their independence.
There are still plenty of potential acquisition targets, at various stages of the VoIP value chain: iSkoot, Truphone, Jaxtr, Fring, Nimbuzz, Ooma, Vonage, 8x8 (Packet8), Rebtel, Freshtel, Mobivox, Sipgate, Vyke, Telio, Snapvine and many others.
All these VoIP services providers combine infrastructure with services provision for end-users, and the question is what the new owners will do with acquired assets. The choice comes roughly down to wholesale (capacity, platform services, software) and retail (VoIP services for end-users). BT (Ribbit) and KPN (iBasis) are choosing clearly for the wholesale side, and that seems to also be the case with Telefonica (Jajah). Operators as well as large corporations can be offered VoIP services based on the acquired infrastructure, platforms and software.
Google and Skype represent, as 'newcomers' on the telephony market, the retail side. As for Jajah, the question is whether Telefonica will maintain the end-user services, or slowly dissolve these in order to protect its own international business. There is a clear reason to keep this side of the Jajah business though: whatever Telefonica is losing on its home market, it can win back abroad by competing with incumbents elsewhere for international business.
That still leaves the question of what's the future for newcomers such as Google and Skype. Pressure from VoIP will eventually drive all call costs to the price of local calls. After deducting termination fees, there is little left over for the provider. Call services will then become a true commodity business. That's the doomsday scenario for Skype, as it mainly makes money from avoiding high international call tariffs. Skype will need to build up quickly a large customer base, in order to offset the margin erosion. For Google, this is less of a problem, as it already has various services that do not directly earn money. For the incumbents, which are already seeing a sharp decline in their international business, there is a need to move further up the value chain. Companies such as BT and Telefonica can be expected to drive innovation on the telephony market going forward, with especially business customers profiting. Skype may also, in cooperation with Avaya target the business market, in order to exploit new income sources.
