© 2008 by Skype. Commercially confidential.

Competition and Pricing AnalysisFor New Unlimited Packages

9 April 2008

Slide 2

Executive Summary

1. 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

2. 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

Slide 3

Three broad questions

1. Who are Skype’s main competitors?

2. How do Skype’s new, flat-rate packages compare to the market?

3. What are the key trends in Skype’s various markets?

Slide 4

Three broad questions

1. Who are Skype’s main competitors?

2. How do Skype’s new, flat-rate packages compare to the market?

3. What are the key trends in Skype’s various markets?

Slide 5

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

Telcos

Slide 6

Supply-side approach Triple-play providers Internet blue-chips VoIP pure-plays

Demand-side approach Ask the customers!

Two approaches toidentifying the relevant competitors

Slide 7

Use

rs’ e

xper

ienc

e

Price

The “true” calling experienceThe “true” but

supposedly cheaper calling experience

The “replacement” calling experience

Supply-side analysisreveals clusters of competition

Slide 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

Slide 9

Demand-side analysisshows online players are Skype’s main competition

Specifically Yahoo, MSN, and Google

Telcos and ISPs? Not at all

The VoIP pure-plays to a lesser extent

Source: Primary research

Slide 10

These results consistentacross all geographies, with minor variations

US/UK top 5: Yahoo, AOL, MSN, Gizmo, Google

German top 5: Jajah, Google, Yahoo, ICQ, AOL

Italian top 5: Gizmo, MSN, Sony, Yahoo, Jajah/Teleo

French top 5: Google, Wengo, MSN, Yahoo, Gizmo

Slide 11

These results consistentacross all geographies, with minor variations

US/UK top 5: Yahoo, AOL, MSN, Gizmo, Google

German top 5: Jajah, Google, Yahoo, ICQ, AOL

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

Slide 12

Three broad questions

1. Who are Skype’s main competitors?

2. How do Skype’s new, flat-rate packages compare to the market?

3. What are the key trends in Skype’s various markets?

Slide 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.

Slide 14

Flat-rate bundles

Online majors VoIP pure-plays Triple-play providers

AOL PAYG Gizmo PAYGDeutsche Telekom

Bundles

Google N/A Jajah PAYGFrance Telecom

Bundles

MSN PAYG VonageBundles& PAYG

Telecom Italia

Bundles

Yahoo PAYG Wengo PAYG TescoBundles& PAYG

Online space is mainly PAYG

Triple-play firms prefer bundling

Source: Primary research

Slide 15

Flat-rate bundles:Domestic

Firm PlanPrice

(monthly)Description

Tesco Anytime UK £5Unlimited calls to UK landlines. 70-minute max call length.

Vonage Residential Premium $25Unlimited calls, US & Canada.Mobiles possibly excluded.

Virgin Talk Unlimited £19Unlimited UK landlines. 59-minute max call length.

TalkTalk Talk3 £7.5* Unlimited calls to UK landlines.

Skype Unlimited Country: €3

*Includes broadband

Slide 16

Flat-rate bundles:International

Firm PlanPrice

(monthly)Description

Vonage Call Europe $35 29 countries. Fixed only.

Arcor International I €4 25 countries. Fixed only.

Telecom Italia Smart Addition: Int’l €10 22 countries. Fixed only.

TalkTalk Talk3 International £10* 36 countries. Fixed only.

Skype Unlimited Europe: €4

*Includes broadband

Slide 17

Flat-rate bundles:International

Firm PlanPrice

(monthly)Description

Tesco Anytime World £8.50 30 countries. Mobiles unclear.

Vonage Basic World $31 17 countries. Fixed only.

Arcor International II €15 25 countries. Fixed only.

TalkTalk Talk3 Total £14.5* 66 countries. Fixed only.

Skype Unlimited World: €9

*Includes broadband

Slide 18

Flat-rate bundles:The upshot

Domestic Europe World

Skype €3 €4 €9

Arcor €4 €15

TalkTalk £7.5 £10 £14.5

Telecom Italia

€10

Tesco £5 £8.50

Virgin £19

Vonage $25 $35 $31

Source: Oanda, 5 March 2008Exchange rates: 1.31 euro/GBP, 0.66 euro/USD

Skype’s new packages are much cheaper than competing bundles

Domestic Europe World

Skype €3 €4 €9

Arcor €4 €15

TalkTalk €9.83 €13.10 €19.00

Telecom Italia

€10

Tesco €6.55 €11.14

Virgin €24.89

Vonage €16.50 €23.10 €20.46

Slide 19

Three broad questions

1. Who are Skype’s main competitors?

2. How do Skype’s new, flat-rate packages compare to the market?

3. What are the key trends in Skype’s various markets?

Slide 20

2006 penetration rates(fixed/mobile connections per 100 population)(broadband connections per 100 households)

Source: Ofcom , “The International Communications Market 2007”

Slide 21

High variety in fixed vs.mobile usage across countries(monthly minutes per capita, 2006)

Source: Ofcom , “The International Communications Market 2007”

Slide 22

Despite mobile’s growth.fixed-line call volume still exceeds mobile(monthly minutes per capita, 2006)

Source: Ofcom , “The International Communications Market 2007”

Slide 23

Fixed vs. mobile(percent of the population)

Source: Ofcom , “The International Communications Market 2007”

13% 18% 10%

38%13%18%

22%

8%

73% 61% 65%48%

0%

25%

50%

75%

100%

UK F rance G ermany Italy

F ixed andmobileF ixed only

Mobile only

Slide 24

PAYG rare outside EuropeEven in Europe, much regional variation(mobile calling plans by type)

Source: Ofcom , “The International Communications Market 2007”

Slide 25

Broadband penetration(connections per 100 population, 2006)

Source: Ofcom , “The International Communications Market 2007”

Slide 26

High variation in VoIP usage (percent of internet users who report using VoIP, Q3 2007)

Source: Ofcom , “The International Communications Market 2007”

Slide 27

Within the UK, Skype leads the pack

High variation in VoIP usage (percent of internet users who report using VoIP, Q3 2007)

Source: Ofcom ,“VoIP Research Report,” June 2007Note: UK total exceeds 16% because some consumers use multiple VoIP providers

Slide 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.

Slide 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 are and how they view Skype versus the competition.

Skype should start tracking consumers’ perceptions periodically so as to understand the competitors’ movements

Slide 30

Appendix

Slide 31

The internet blue-chips

Slide 32

The internet blue-chips

Slide 33

The internet blue-chips

Slide 34

The VoIP pure-plays

Slide 35

The VoIP pure-plays

Slide 36

The access providers

Slide 37

The access providers

Slide 38

The access providers

Slide 39

The access providers

Slide 40

The Telcos:France Telecom

Slide 41

The Telcos:Deutsche Telekom

Slide 42

The Telcos