When Skype, the PC-based Voice over Internet Protocol provider, petitioned the Federal Communications Commission last month to allow consumers to load third-party, IP-based software onto their mobile phones, the company was thinking big.
Getting a proprietary VoIP client onto mainstream feature phones could put Skype mobile in the bulk of handsets in the United States and send Skype’s prospects skyward. That would be great news for the company and its owner, eBay Inc., which paid $2.6 billion for the company in 2005.
There’s only one problem or, rather, a handful of problems, according to one analyst who follows this market segment.
First, according to analyst Bill Morelli at IMS Research, the FCC petition is likely doomed without broad wireless industry support, regardless of its legal arguments. Wireless industry trade association CTIA put a fine point on that argument when CEO Steve Largent wrote the FCC to protest that Skype’s request would “freeze the innovation and choice hundreds of millions of consumers enjoy today”-the basic argument made by U.S. mobile network operators.
The carriers, naturally, are resistant to enabling any service that could cannibalize their voice and data revenue models; already many carriers restrict MVNOs from offering data on the network.
Another reason Morelli sees hurdles to Skype’s sky-high dreams? Skype would have to make its VoIP software client compatible with dozens of proprietary operating systems that run on mid-tier feature phones. And the company would have to induce consumers to embrace downloadable handset clients, probably by cable tether from their PCs, to enable the Skype client.
Meanwhile, the most direct means of getting the Skype client on handsets would naturally lead to the handset vendors’ executive suites, but the reception there may be cool: handset vendors tread carefully in these matters, wary of alienating the carriers, their main customers in the U.S.
While these are tangible hurdles, Skype has had some success in penetrating the landline world-enough success that many eyes are upon it-and it appears quite serious about its effort to gain support at the FCC. Its man in Washington, D.C., Christopher Libertelli, senior director for government and regulatory affairs, served as an aide to former FCC chairman Michael Powell.
Libertelli was unable to respond by press time to a request for comment on the London-based company’s plans and on analysts’ views on its challenges.
Skype can already address the smartphone segment, due to smartphones’ extensible OSs such as Microsoft Corp.’s Windows Mobile, Symbian and Linux, but that’s only perhaps 10 percent of the market.
“They’re going to have real problems outside the smartphone segment,” Morelli said. “When you get to the high-end, feature-phone segment, the Skype client would have access to some handset operating system resources, but not the critical ones, based on carrier-imposed constraints. Skype is fighting for carriers to unlock the mid-tier phones that comprise the bulk of the market.”
“A lot of people in the industry would like to see that happen, but the operators are fighting it tooth-and-nail to retain control over what they consider ‘their’ handsets,” Morelli said. “Even then, you’d have to have a tech-savvy consumer sideload the client on a device that’s been unlocked by a third-party service. The carriers aren’t going to allow over-the-air downloads of that nature. They don’t want to lose voice and data revenue to someone else.”
Mainstream adoption of sideloading is unlikely, in Morelli’s view.
“You’ve got the ‘propeller heads’ who like to play around with that sort of thing, but your average consumer isn’t going to mess with it,” the analyst said. “They’d have to download an applet to the device and Skype would have to guarantee that its client will work on that particular device. Most OSs on features phones are proprietary and without the software development kits typically available with extensible OSs. And how do you get consumers to load it, when they may not have the cable and software to do it? It’s kind of a Pandora’s Box and the carriers are resisting.”
These hurdles are all in addition to intrinsic limitations on Skype’s service quality-because it doesn’t control the IP network and can’t guarantee an uncongested network for glitch-free service or quality-which also apply to wired networks. Wireless network operators’ control over their networks, of course, allows them to market their service quality.
Skype and 3
According to analyst Joe Laszlo at Jupiter Research, even as Skype explores the option of bypassing carriers, it is working with one in the United Kingdom. U.K. operator 3 is new and willing to take risk to get traction, so it’s offering Skype on its network and getting revenue from users for a data plan, while losing voice revenue in the deal, Laszlo pointed out.
“Mobile operators in general have looked askance at this limited value proposition,” Laszlo said. “It’s hard to see American carriers letting go of voice revenue. They already restrict data use by MVNOs, which have added users to the network without, apparently, cannibalizing carrier revenue.”
There’s only so much companies such as Skype can do about traditional VoIP problems, such as IP-network congestion and last-mile connectivity, according to Laszlo. VoIP providers typically deliver good quality of service-calls typically don’t drop, voice quality is good, the analyst said-but they cannot guarantee the experience.
“It’s still early for wireless VoIP,” Laszlo concluded. “The utopian vision is to bypass the mobile network operators. I don’t think that’s going to work. If it’s not in their interest, they’re not going to allow VoIP on the mobile handsets they subsidize. VoIP players need to make their service somehow attractive to the mobile operators. Now that Skype is working with 3, we see that that’s possible, if rare.”
Morelli’s view on the reality requires accommodation on both sides, which may be difficult-as-usual with billions of dollars in potential revenue on the line.
“In the long run, in my personal opinion, the network operators are better served by finding a way to work with this technology rather than against it, because it’s going to happen,” Morelli said. “But they’re reluctant to open the deck and that, in my opinion, has stifled application development opportunities.
“Everyone is following this topic very closely,” Morelli concluded. “They’ve seen VoIP’s penetration of the landline market to become a significant presence in the market.”
