San Francisco - Online auction house eBay said Tuesday that it plans to spin off its online telephony business Skype via an initial public offering by the middle of next year.

The announcement was seen as an admission by the auction powerhouse that its 2.6-billion-dollar purchase of Skype in 2005 had not worked out as expected. Though Skype has grown to annual revenues of more than 500 million dollars, it has failed to help eBay shore up its maturing auction business.

"It's clear that Skype has limited synergies with eBay and PayPal," eBay chief executive John Donahue said in a statement. "Operating Skype as a stand-alone, publicly traded company is the best path for maximizing its potential."

Donahue said that the exact timing of the offering would depend on market conditions.