Monday, October 22, 2007

Skype Goes Mobile

Continued from page 1

By John Borland

For instance, although Skype application features such as contact lists and chat windows appear on the phone, the actual network connection isn't entirely VoIP, explains iSkoot CEO Jacob Guedalia. Instead, a traditional circuit-switched connection is made to the mobile operator's network, where a call reaches a VoIP gateway to be relayed across the Internet. This configuration keeps customers using traditional network airtime, an issue of deep concern to mobile operators.

Three Mobile's tightening relationship with Skype seems to be evidence that it has learned two of the wired Net's most critical lessons for stimulating user growth: make it flat rate, and make it easy.

In consumer surveys, much of the resistance to mobile data services in recent years has stemmed from their complicated pricing, with fees often assessed per feature or per megabyte of data transferred. Only recently have carriers begun moving toward the flat-rate pricing common for PC Internet services (although most carriers still impose a data-transfer cap).

Three Mobile's existing Skype services offer a look at how the company may treat the new Skype phone. The lowest level of service charges about $10 a month on top of basic voice subscription fees for flat-rate "unlimited" Internet use--which in fact offers about one gigabyte of data transfer and 5,000 Skype-to-Skype minutes, still enough to eliminate most fears of extra charges.

Ease of use may be the trickier part. The tools on Apple's iPhone aside, many ordinary Web applications have had a rough transition to the mobile phone, and VoIP is no exception, despite 3 Mobile's earlier work with Skype.

"We need to see a big increase in usability on the device," says CCS Insight's Blaber. "So far, it's still been very cumbersome, with a large degree of know-how and configuration required."

ISkoot's Guedalia predicts that the Skype device will assuage these concerns, however. "You can expect it will be a really seamless experience on the White Phone," he says. "Think about how well e-mail works on the BlackBerry. That's how well it should work."

Analysts say it's too early to predict whether Skype on cell phones will have any genuinely disruptive effect on mobile voice revenues, or further erode landline use already under pressure by Vonage and other Net calling services. Much will depend on whether other operators follow 3 Mobile's lead, and how the services are priced.

But for Skype, the new market comes at a critical time. Early this month, the service's parent company, eBay, announced that it would take a $1.4 billion charge against its third-quarter earnings, with about $900 million of that related to lowered revenue expectations for Skype. Essentially, eBay is conceding that it overpaid in its $2.6 billion acquisition of the Net phone service.

With service areas concentrated in Europe and Asia, 3 Mobile is well placed to appeal to Skype's core paying audience. According to its latest financial statements, fully 83 percent of the Net phone company's revenues come from non-U.S. sources.

A Skype spokesman said that the new product would mark a "radical step forward in mobilizing Internet calls for a mass market." Bringing Skype to the market of mobile-phone subscribers, who, according to research firm Informa, number 2.7 billion worldwide, could be a radical improvement in the company's prospects indeed.