Jeremy Warner's Outlook: Centrica ups its energy prices again, but the long-term forecast is for an easing of pressures

Gone are the days of unlimited supplies of cheap North Sea gas. British supplies are running out. Centrica and others must increasingly buy from abroad
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The Independent Online

Others eventually followed suit, but by that stage the damage was done. Egged on by the regulator, who said the best protection against rising gas prices was to switch supplier, BG's customers deserted in droves. Margins were protected, but the damage to market share was little short of calamitous.

This time around, Centrica has been careful not to go first. Powergen and EDF have already raised their prices by a similar order of magnitude, while Scottish Power and Scottish & Southern are expected to follow suit shortly. Only Npower has guaranteed to hold prices to the end of the year, when it can be expected to recoup lost margin with an even larger increase.

Rising oil prices mean the gas suppliers are constantly running to catch up. In fact, claims Centrica, an even larger increase was needed to recoup losses from ever-rising wholesale prices. The upshot is that there will be a significant reduction in profits for the second half. Earnings for the year as a whole will be at the lower end of analysts' forecasts.

Gone are the days of unlimited supplies of cheap North Sea gas. British supplies are running out, which means Centrica and others must increasingly buy from abroad, where the price is higher, to meet demand. Britain has been trying to force the pace of deregulation on the Continent, but it is an uphill struggle, with supply still largely dominated by national monopoly and the price of gas contractually indexed to oil. In time, both these upward pressures on the cost of Continental gas should ease.

The construction of two new pipelines from Norway should also help, as will the plethora of new Liquid Natural Gas terminals opening up around our shores to ship the stuff in from Qatar and elsewhere in the world. So the longer-term prognosis is for an easing of present pricing pressures. In the meantime, it's grin, bear it or freeze.

Is the hype around Skype justified?

There I was, together with assorted members of the Warner family, sitting in a coffee shop in St David's, Pembrokeshire. There's a laptop open on the table before us, and we are chatting to a brother who lives in Tokyo. It's not quite the same as having him with us in South Wales, but it's the next best thing. If the computer had had a camera built in, we could have seen him too. The conversation lasts about half an hour. If we had been using a normal landline, the call would have cost about £3, and because we were talking about nothing in particular, we probably wouldn't have made it in the first place. In fact we are using Skype and it's completely free.

Skype and others that use so-called "voiceover IP" technology to deliver near-free telephone calls are the new big thing in the ever-changing world of telecommunications. Everyone is talking about it, and seemingly everyone wants to get in on the act, either out of necessity in the case of incumbent telecom companies, or as a way of winning customers that can be monetarised in other ways with media, software and internet operators.

With 53 million registered users worldwide, Skype is the one that seems to be top of everyone's shopping list. We knew about Yahoo!, News Corp, Microsoft and Google. Now eBay has joined the list of potential suitors with a mooted takeover bid of anything up to $5bn. But even assuming the company is for sale - the founders and their private-equity backers have to date insisted that it is not - what would these interested parties be buying?

In essence, Skype is just a community, or directory, of users united by the company's software, which allows members to call each other free using their broadband connection. In that sense, the service isn't exactly "free", for any broadband connection carries a considerable monthly charge. However, none of that charge goes to Skype. Rather it aims to make its money from users that stray outside the Skype community to call someone on a landline, a mobile phone or another portal such as MSN. For this you get charged, though it is still quite a lot cheaper than traditional telephony.

None the less, the business model plainly isn't a stable one. The more people that become Skype users, the less members need to access the charged service. Skype is a private company, so little is known about its revenue and profits, but the assumption has to be that it isn't yet profitable and it may struggle ever to become so. In that sense it's a bit like many of the early dot.coms, some of which were brilliantly conceived but had no real way of making money.

Skype's founders insist they want to remain independent, but unless they can find other ways of monetarising their users, their company is likely to be worth more to others than it is on its own. Whether Google was ever in pursuit of Skype is open to question, but if it was it seems now to have abandoned the quest in favour of its own, greenfield voiceover IP service.

Here the purpose is not to make money out of the service as such, but as a way of driving the customer base, of giving people another reason to use Google. The same motivation lies behind eBay's approach to Skype. For eBay, there may be the additional purpose of allowing auction users to speak to one another so they can learn more about the item on offer.

What does all this mean for the big telephone companies? Well, they are not about to be put totally out of business, for it is they that provide the broadband connection, and there is no way that's ever going to be free. But it does mean the end of traditional, metered call charges, which hitherto has been the meat and drink of the incumbents' revenue base. This won't happen overnight, but the transition will probably occur faster than financial markets are anticipating.

It will also plainly affect the cost of mobile telephony too, though possibly not to the same extent. The convenience of telephony on the move should support a degree of continued pricing power for the big mobile operators, though even here the impetus will be towards flat-rate fees for unlimited use.

The bottom line is that the hype around Skype, Luxembourg-registered but London-based, is indeed fully justified. It's helping to change the world as we know it. Yet unless the company can transform itself into a portal in its own right, with search engine capabilities and the ability to generate advertising revenue, it may always struggle to make money. It also faces growing competition from the likes of Google, Yahoo!, MSN, and even our very own BT Group, which offers a similar service to its broadband subscribers.

Skype's founders and backers should swallow their pride and sell up while they still can. Skype may be flavour of the month right now, but the pace of change in communications is now so fast that as likely as not it will be displaced by something even more exciting by this time next year.

Stock market seems oblivious to Katrina

Time was when a disaster as devastating and humiliating to the US as Katrina would have knocked the stuffing out of the stock market. Combine that with a record-high oil price, in nominal terms at least, and you have all the ingredients for a perfect stock-market storm. Instead world stock markets are still in robust form at close to three-year highs. All these negatives have been like water off a duck's back. Are investors right to be so sanguine? Record corporate profits in combination with an improving outlook for the world economy suggests they are.