Intent on finding its way back to growth again, AT&T is considered likely to make a major acquisition in the coming year. The carrier has been rumored to have interest in several different companies, among them DirecTV. I think the target should be Skype. Here’s why:

1. Skype is available, for the right price. I simply don’t buy that eBay is going to try to spin the IP telephony provider out in an IPO next year. eBay’s announcement last week was a negotiating ploy designed to drive the price up. Skype founders Niklas Zennstrom and Janus Friis have reportedly been in talks to raise private equity funding to buy back the company. Locked in an intellectual property battle with them, eBay CEO John Donohoe doesn’t want to sell to Zennstrom and Friis. He’d certainly listen to Randall Stephenson if the AT&T CEO called.
2. AT&T needs to find a new engine of growth. Reviewing the carrier’s earnings report earlier this week, Dow Jones columnist Robert Armstrong noted, “AT&T's current growth engine, the iPhone, – net additions were 1.6 million in the latest quarter – will not retain its cachet indefinitely.” The company’s core business, wireline voice connections, continues to erode, and its wireless business (even with the exclusive iPhone deal, which is not going to last forever) is “decelerating,” as the analysts say. Trying to fend off the low-cost or free offerings of VoIP providers like Skype is a defensive strategy. The company needs a bold move, which brings us to:
3. AT&T must bridge the “Telco 2.0” gap. “If telco fears are realized, service providers not offering the latest in Web 2.0/Voice 3.0 content and connectivity could be overtaken by the Googles and Skypes of the world,” VON senior editor Kelly Teal reported last year. An Economist Intelligence Unit survey, sponsored by IBM, found that three-quarters of telecom executives believe that “service providers must pair with outside companies such as search engines, content creators, outfits that help provide targeted advertising, and the like” in order to flourish in the new era of converged IP communications. Big carriers don’t have the entrepreneurial culture, or the legacy-free innovative mindset, to make this leap. Skype does.
4. There’s a precedent. In July 2008 BT acquired Silicon Valley startup Ribbit, a provider of advanced IP telephony applications, for $105 million. That’s a lot less than AT&T would have to pay for Skype (eBay’s starting price would probably be in the $1.7 billion range), but the VoIP provider would bring with it 405 million subscribers – people who are unlikely to ever buy conventional AT&T services. Ribbit hasn’t contributed significantly to BT’s bottom line yet, but the IP app provider has positioned BT for growth in the next phase of the telecom industry. Last year the U.K. carrier said that it would voice-enable Salesforce.com via the Ribbit platform, so that salespeople can phone in leads or account notes to the company CRM system while on the road, rather than take the time to log onto the Internet with a laptop and type them in, and have them transcribed into Salesforce. That’s just the kind of voice/Web/enterprise application that big carriers need to develop to prosper in the dawning unified communications world. AT&T has already said it would double the capacity of its wireless network to handle more iPhones and mini-laptops, or “netbooks,” flooding into the market. The addition of Skype, which is moving aggressively into the mobile and enterprise markets, would give AT&T more appealing applications and services to run over those wireless broadband networks.
5. AT&T can afford it. The carrier still has a whopping $71 billion debt load, but Stephenson and his CFO have managed to reduce that by about $8 billion in the last nine months. The company generated $4.6 billion in free cash flow in the quarter ending March 31, and it has $3.8 billion in cash reserves. What’s more, the dwindling of voice service revenue is not happening as quickly as many feared, and wireless data continues its rapid growth, meaning that AT&T still has strong core businesses to sustain it during the ingestion of Skype and the transition to a more IP- and application-centric business model.

The risk, of course, is that a) Skype, under the wing of a carrier parent, won’t be able to sustain its lightning growth and successfully integrate its innovative applications into the parent company’s offerings, and b) the markets wouldn’t like it.

Those risks are lower than the obvious cost of doing nothing. Stephenson should make that call to Donohoe today, if he hasn’t already.