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Internet auction giant eBay is to cut up to $1.2 billion (£590 million) off the potential price it agreed to pay for internet phone service Skype.

Back in September 2005 eBay agreed to pay $2.6 billion (£1.27 billion) for Skype and to make further payments of up to $1.7 billion (£833 million) provided the acquired business met various growth and profit targets.

The decision by eBay to write down the value of its investment in Skype by nearly 50 per cent marks a recognition that the web-based phone firm has failed to generate the returns its parent company had hoped for.

Skype generated just $90 million (£44 million) in revenue in the three months to the end of June.

Commenting on eBay's decision to write down the value of Skype on its books, Youssef Squali, of brokerage Jeffries & Co, said: "I think this is a testament that the Skype franchise is not worth as much as eBay originally thought."

Yesterday eBay announced that the founders of Skype, Niklas Zennstrom and Janus Friis, had resigned as executives of the business.

In a statement it confirmed that it had agreed to make €375 million ($530 million, £261 million) in payments to the pair and other Skype shareholders to end obligations agreed to at the time the company bought the firm.

Following the resignation of Skype's founders, eBay said that it had "paid €375 million to settle all of its future obligations under the earn-out agreement signed with certain Skype shareholders when eBay acquired Skype in 2005."

In agreeing to buy Skype two years ago eBay had hoped to boost growth in its key online auction business and to use the web-based phone service to encourage consumers to use its PayPal online payments system.