Competition and Pricing Analysis For New Unlimited Packages 9 April 2008

1. Competition and Pricing Analysis For New Unlimited Packages 9 April 2008

2. Executive Summary Competitive analysis Consumers think of Skype as competing with: Internet majors: Google, Microsoft, Yahoo, AOL VoIP pure-plays: Gizmo, Jajah, Wengo Not telcos and cable providers Pricing analysis Unlimited packages are ground-breaking Flat-rate pricing is almost unheard of amongst internet majors and VoIP pure-plays Lack of lengthy contract is unique Packages are significantly cheaper that everybody else

3. Three broad questions Who are Skype’s main competitors? How do Skype’s new, flat-rate packages compare to the market? What are the key trends in Skype’s various markets?

4. Three broad questions • Who are Skype’s main competitors? • How do Skype’s new, flat-rate packages compare to the market? • What are the key trends in Skype’s various markets?

5. Telcos Access Providers VoIP Skype’s view is... • We’re taking customers from telcos – because comparitively we’re much cheaper for international calls • Our strongest competition comes from access providers • Among SkypeOut active users we are losing to other VoIP providers

6. Supply-side approach Triple-play providers Internet blue-chips VoIP pure-plays Demand-side approach Ask the customers! Two approaches to identifying the relevant competitors

7. Supply-side analysis reveals clusters of competition Users’ experience The “true” calling experience The “true” but supposedly cheaper calling experience The “replacement” calling experience Price

8. Demand-side methodology • In absence of consumer survey data, we used Google to tally all the firms mentioned in the context of Skype’s competition. • We conducted 9 searches: • Google.com: Skype competition, Skype competitor, and with whom does Skype compete • Google.de: Skype konkurrenz and Skype konkurrent • Google.fr: Skype concurrence and Skype concurrent • Google.it: Skype concorrenza and Skype concorrente • For each search, we looked at the top 10* results and recorded the name of every company mentioned on the page • Sample universe of 77 webpages, 90 companies, 207 mentions * Discarding any duplicates

9. Demand-side analysisshows online players are Skype’s main competition Specifically Yahoo, MSN, and Google The VoIP pure-plays to a lesser extent Telcos and ISPs? Not at all Source: Primary research

10. These results consistentacross all geographies, with minor variations Italian top 5: Gizmo, MSN, Sony, Yahoo, Jajah/Teleo French top 5: Google, Wengo, MSN, Yahoo, Gizmo German top 5: Jajah, Google, Yahoo, ICQ, AOL US/UK top 5: Yahoo, AOL, MSN, Gizmo, Google

11. These results consistentacross all geographies, with minor variations Italian top 5: Gizmo, MSN, Sony, Yahoo, Jajah/Teleo French top 5: Google, Wengo, MSN, Yahoo, Gizmo Nowhere do consumers associate Skype’s competition with telcos and cable providers German top 5: Jajah, Google, Yahoo, ICQ, AOL US/UK top 5: Yahoo, AOL, MSN, Gizmo, Google

12. Three broad questions • Who are Skype’s main competitors? • How do Skype’s new, flat-rate packages compare to the market? • What are the key trends in Skype’s various markets?

13. Pricing methodology • We looked at online majors, VoIP pure-plays, and traditional telcos in five countries: • Online majors: AOL, Google, Microsoft, Yahoo • VoIP pure-plays: Gizmo, Jajah, Wengo, Vonage • France: Orange (France Telecom), Free (Iliad), Neuf Cegetel, Alice (Telecom Italia) and Tele2 • Germany: Arcor, Deutsche Telekom, Freenet, United Internet • Italy: Telecom Italia, Wind, Tele 2, FastWeb • UK: BT, Virgin, TalkTalk, Tesco • US: AT&T, BellSouth, Comcast, Verizon • We found 12 packages offered by 6 companies that are broadly similar to Skype Unlimited Domestic, Unlimited Europe, or Unlimited World.

14. Flat-rate bundles Online space is mainly PAYG Triple-play firms prefer bundling Source: Primary research

15. Flat-rate bundles:Domestic Skype Unlimited Country: €3 *Includes broadband

16. Flat-rate bundles:International Skype Unlimited Europe: €4 *Includes broadband

17. Flat-rate bundles:International Skype Unlimited World: €9 *Includes broadband

18. Flat-rate bundles:The upshot Skype’s new packages are much cheaper than competing bundles Source: Oanda, 5 March 2008 Exchange rates: 1.31 euro/GBP, 0.66 euro/USD

19. Three broad questions • Who are Skype’s main competitors? • How do Skype’s new, flat-rate packages compare to the market? • What are the key trends in Skype’s various markets?

20. 2006 penetration rates(fixed/mobile connections per 100 population)(broadband connections per 100 households) Source: Ofcom , “The International Communications Market 2007”

21. High variety in fixed vs.mobile usage across countries(monthly minutes per capita, 2006) Source: Ofcom , “The International Communications Market 2007”

22. Despite mobile’s growth.fixed-line call volume still exceeds mobile(monthly minutes per capita, 2006) Source: Ofcom , “The International Communications Market 2007”

23. Fixed vs. mobile(percent of the population) Source: Ofcom , “The International Communications Market 2007”

24. PAYG rare outside EuropeEven in Europe, much regional variation(mobile calling plans by type) Source: Ofcom , “The International Communications Market 2007”

25. Broadband penetration(connections per 100 population, 2006) Source: Ofcom , “The International Communications Market 2007”

26. High variation in VoIP usage (percent of internet users who report using VoIP, Q3 2007) Source: Ofcom , “The International Communications Market 2007”

27. High variation in VoIP usage (percent of internet users who report using VoIP, Q3 2007) Within the UK, Skype leads the pack Source: Ofcom ,“VoIP Research Report,” June 2007 Note: UK total exceeds 16% because some consumers use multiple VoIP providers

28. Conclusions • Skype’s main competitors are not telcos and cable providers. Instead: • Internet majors: Microsoft, Yahoo, Google, AOL • VoIP pure-plays: Gizmo, Jajah, Wengo • Skype’s Unlimited calling packages are disruptive. • Highly unusual amongst the internet VoIP competitors (though commonplace for telcos and cable firms) • Lack of lengthy contract period is unique • Significantly cheaper than existing fare on the market • There are important national differences in phone usage and pricing.

29. Recommendations • At present, Skype needs to focus more on its internet competitors and less on the likes of BT and Deutsche Telekom. • In the future, the competitive set may evolve over time. Hence: • Skype should conduct more direct consumer research to better understand who its competitors areand how they view Skype versus the competition. • Skype should start tracking consumers’ perceptions periodically so as to understand the competitors’ movements

30. Appendix

31. The internet blue-chips

32. The internet blue-chips

33. The internet blue-chips

34. The VoIP pure-plays

35. The VoIP pure-plays

36. The access providers

37. The access providers

38. The access providers

39. The access providers

40. The Telcos: France Telecom

41. The Telcos:Deutsche Telekom

42. The Telcos