Skype Goes Mobile

Long seen as a threat to cellular carriers' revenues, Internet phone calling will be the basis of a new service from 3 Mobile.

For all its popularity among computer users, Skype, a service that lets users place cheap phone calls over the Internet, has been a virtual no-show in the fast-growing world of Net-connected mobile phones.

Possible preview?: The interface of the new Skype White Phone remains under wraps. But the device’s developers are collaborating with iSkoot, which already offers Skype support for some cell phones, as pictured here. Credit: iSkoot

That may be about to change. Britain's Hutchison 3G U.K., better known as 3 Mobile, is creating a new, custom Skype phone aimed, as one partner in the project says, at making cheap Internet calls on a cell phone as easy as sending e-mails on a BlackBerry.

What's so radical about making calls on a phone? Skype offers free calls between its subscribers, or bargain-basement prices for international calls that ordinarily bring cell-phone operators big bucks. For this reason, most cell-phone companies have been leery of letting Skype or other Internet calling services onto their phones or networks, fearing that they might undermine revenues.

But the release of a new phone built specifically around Skype would for the first time cast the Net calling service as one of the mobile Internet's main attractions, and potentially help weaken other cellular operators' resistance to it.

"This has real potential for getting cheaper calls," says analyst James Myring, whose U.K.-based firm, Continental Research, has recently documented consumers' lukewarm response to mobile content offerings. "That's something people really want, and people will do it, as long as it is easy to use."

As yet, technical and pricing details on the new device, initially dubbed the White Phone, remain scarce. A Skype spokesman said only that the company is working with the Britain-based mobile-phone operator to create a "new product to make Skype completely mobile," while 3 Mobile entirely declined to comment.

A top executive for iSkoot, a partner company providing some of the networking technology supporting the phone, confirmed that it is in development but declined to provide specifics. A recent BusinessWeek report describes a customized cell phone with a button automatically activating the Skype application.

Putting this cost-cutting voice-over-Internet-protocol (VoIP) service at cell-phone subscribers' fingertips could be an attractive way to hold on to customers, particularly 3 Mobile's core demographic of young, Net-savvy consumers, analysts say. But it's risky, too.

Like their landline counterparts, cell-phone companies are struggling to protect voice-calling revenues, even as they push their consumers toward high-margin Internet features.

"Undoubtedly, mobile operators see VoIP as a threat, particularly to boundary-crossing revenues, which have been healthy," says Geoff Blaber, senior analyst at British telecommunications research firm CCS Insight.

Whether mobile Internet telephony will prove financially viable depends on carriers' customer bases and revenue goals. International calls, while often bruisingly expensive, are typically avoided by mobile customers unless absolutely necessary. Similarly, high cross-border roaming fees are already falling, in part because of new regulations imposed by the European Union.

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Meanwhile, carriers around the world are pointing to data services as their fastest-growing business units. Three Mobile, whose business is focused on third-generation, or 3G, data services, is particularly attuned to this market and therefore may have less to lose from Skype than do some of its peers, analysts say.

Skype access is already facilitated by iSkoot software packages available to 3 Mobile users today, and the way it's handled there may further help lessen carriers' trepidation.