Skype's the limit

Net Results: When the phone calls are free, where does a mobile operator find a business plan?

That's what a lot of people will be wondering after network operator 3 and eBay's internet telephony company, Skype, announced a partnership to roll out specially-designed Skype handsets and call services within the next few weeks (see story below).

These will allow users to press a button to make free calls or send instant messages to other users who have Skype mobile handsets, or to any of Skype's 246 million registered users worldwide who use their PC and broadband network to make cheap or free calls over the internet.

Not that all of those registered Skype users are actual users, however. Analysts say only about 60 million of them regularly make calls, but that's enough to account for a significant 7 per cent of all international call traffic.

Users won't be able to use the 3 handset to make Skype calls to regular landlines or mobile phones, but some media reports said such a service would be introduced at some point next year - a deal that would make the phones particularly compelling.

In the meantime, the handset can also be used as a normal mobile phone to make calls to landlines or other mobiles.

The service will be rolled out in all eight of 3's mobile phone networks, in Austria, Australia, Denmark, Hong Kong, Ireland, Italy, Switzerland and the UK.

Skype is understood to be in discussions with other operators to supply a similar service in other markets.

The announcement wasn't totally unexpected. Rumours had been circulating in recent weeks that the two companies were close to announcing a deal. But it is still a surprising move - a daring step, bringing a potentially disruptive internet technology into the mainstream mobile arena.

In general, while more and more handsets can access the internet, mobile operators have been none too keen to let any internet telephony services gobble up their revenue (for a little reality check into just how lucrative Irish mobile usage is for the operators, check out the latest annual figures from O2, which reveal that the company pockets about €4 million a week here).

To understand why Skype makes most mobile operators blanch, compare the cost of using Skype to call the US with a PC - two cent a minute - and the cheapest tariff available to ring the US with an O2 mobile - 29 cent a minute.

Not surprisingly, many operators have blocked the service from being used on their mobiles phones.

So why is 3 introducing it? Robert Finnegan, 3's managing director in Ireland, says it's because the operator feels that the handset and service will grow its user base.

He is quick to point out that the handset also delivers all of the services 3 provides over its 3G networks - mobile television, internet access, music and multimedia messaging services.

And, of course, the company gets a better revenue margin on those services than on voice calls anyway. Plus, only so many friends, family and work contacts are going to be registered on Skype. The handset should get plenty of use as a regular mobile phone, totting up regular mobile call charges. The wider reality is that voice calls on both landlines and mobiles have been an ever-decreasing source of revenue for years, and call costs have been dropping.

For ages now, service providers have been showing analysts and journalists charts that demonstrate how they plan to move their revenue streams away from voice and over to data.

Whether those ultra-low to zero-cost calls come via Skype, or simply because operators eventually let data revenue subsidise voice calls, the fact is that the entire industry will move this way eventually.

And despite the current grumbling about internet telephony's incursions into mobile territory, the reality is that operators are going to be using the internet to carry calls, as this is a cost-effective, obvious way to run networks efficiently and reduce network congestion.

Talk to companies like Dublin-based Cicero Networks, which sells software that enables exchanges between internet and traditional networks, and they will confirm that they are chatting to a lot of network operators.

These convergence pieces will eventually fall into place. But it will be interesting to see if 3's early move shakes things up and hastens the process.

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