A good paper that analyzes the Skype protocol and the codecs used is available at: http://arxiv.org/ftp/cs/pap...
Skype is using the proprietary iLBC and iSAC codecs from Global IP Sound.
Commercial telcos use the G.711 codec on T1 or E1 circuits. The codec takes 8 bit speech samples 8000 times each second (8 KHz), therefore G.711 operates at 64 Kbps. Global IP Sound (GIPS) indicates that their iLBC codec operates at 15.2 Kbps and has quality very close to that of G.711. GIPS indicates on their Website that iSAC is a codec that samples at twice the rate of G.711 or at 16 KHz and that it has better audio quality than G.711.
Skype clients communicate in a peer-to-peer fashion and the proprietary codecs are used between their endpoints. Skype also uses a proprietary protocol to set up calls. This use is reasonable and appropriate among the Skype user community but it does not allow much in the way of interoperability with equipment from other vendors.
As an example, the SIP protocol is supported by many vendors to set up and control calls and other media. The G.711 codec is supported by all vendors and thus interoperability is much easier to achieve.
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