Vis a vis BT’s PSTN business, Martin Geddes says:
To the extent that people value emergency service, back-up connectivity, and PSTN call quality, they’ll keep on paying. And that’s bad news for Skype. Because there’s not a whole lot stopping BT from dropping their prices further and further; sacrifice the PSTN application revenue to capture the sticky connectivity revenue. They’ve got an army of lawyers and accouuntants who can doubtless justify pretty much any pricing structure as being cost-based, when costs are now largely a figment of the interconnect contract and unrelated to any real network costs.
Skype’s only way out is to deploy the stupid network to its utmost: increase the nummber of features compared to PSTN telephony, and fast. Their client is still years ahead of the clunky BT/Yahoo offering in all other respects.
The real question is not whether BT could drop their prices, but whether they will. Bell Canada just cancelled a similar experiment, after seeing their long distance business erode by a staggering 14%. Bell was offering 1000 minutes of long distance for $5/month.
According to Bell Canada’s Q2 2005 report, Bell’s only growth business in their landline franchise is "wireline insurance and maintenance plans". Doesn’t that just say it all?
My prediction: most of the incumbents will try this tactic for a short period of time before concluding that the route to preserving shareholder value is the delivery of new and meaningful services to their customers.