Skype Skeptical

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Cisco has rolled out an HD video conferencing system to the home market, priced at $599 for a console and camera, that works with the user's existing HD TV.

Analysts said the high price of umi may mean mass adoption is years away. Many predicted the price to come down over the next few years, but they also noted the likelihood that competitors like Skype would introduce higher-quality services in the meantime.

Skype said in its blog that a $599 device could be "subject to obsoletism at the hands of mass-market options."

"And, when unbeatable lower cost, high performance options are readily available, spending at the top-end can be like throwing money away, especially if you are buying a video calling system and there is no one else to call," wrote an executive, Jonathan Christensen.

In a sign of more rivalry ahead, Skype last month said it was teaming up with Avaya to sell communications systems to businesses. It also hired Tony Bates, a veteran Cisco executive, as its chief executive earlier this week.

Marthin De Beer, head of Cisco's emerging technologies business group, said umi's quality made it different from others.

"It is different, it's a new class of product and you will see that the experience is transformational," he said at a launch event in San Francisco.

He also predicted it would lead to new opportunities like distance-learning and remote medical care in the future.

Some analysts also said that even if Cisco has a hard time competing with the likes of Skype, it would not necessarily be a big loss. A growth in popularity of Web chats in general drives up Internet traffic, boosting demand for routers and switches, Cisco's traditional bread and butter.

"A lot of Cisco's efforts are dedicated to promoting greater demand for the other things if they sell, like the routers," said Gartner's Dulaney. (Additional reporting by Sinead Carew. Writing by Ritsuko Ando; Editing by Richard Chang)