Skype-Like Calls Seen Boosting Vodafone’s Prospects in Battle With Google

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Photographer: Denis Doyle/Bloomberg

Vittorio Colao, chief executive officer of Vodafone Group Plc.

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Photographer: Denis Doyle/Bloomberg

Vittorio Colao, chief executive officer of Vodafone Group Plc. Close

Vittorio Colao, chief executive officer of Vodafone Group Plc.

Photographer: Chris Ratcliffe/Bloomberg

A Samsung smartphone displays a Joyn instant messaging application logo at the Vodafone Group Plc pavilion at the Mobile World Congress in Barcelona. Close

A Samsung smartphone displays a Joyn instant messaging application logo at the Vodafone Group Plc pavilion at the... Read More

Photographer: Chris Ratcliffe/Bloomberg

Artists paint a promotional mural for the Joyn instant messaging application at the Mobile World Congress in Barcelona. Close

Artists paint a promotional mural for the Joyn instant messaging application at the Mobile World Congress in Barcelona.

Photographer: Andrew Harrer/Bloomberg

Microsoft is stepping up its promotion of Skype, following its $8.5 billion acquisition of the company last year. Close

Microsoft is stepping up its promotion of Skype, following its $8.5 billion acquisition of the company last year.

Mobile-phone operators, facing the threat of social media taking the lion-share of new services, are fighting back with Internet calls that will put them in direct rivalry with Microsoft Corp. (MSFT)’s Skype Technologies SA.

Vodafone Group Plc (VOD) and Deutsche Telekom AG (DTE) will this summer offer an instant messaging application to combat the free services provided by WhatsApp and Google Inc. (GOOG) that flood their networks with surging data traffic. Dubbed Joyn, the global initiative is set to extend to Asian and U.S. carriers and will also make it possible for the operators to offer Internet-video calling on new high-speed networks.

“We left it open and they stepped into the space,” Kobus Smit, the Deutsche Telekom (DTE) executive responsible for running the initiative, said in an interview at the Mobile World Congress in Barcelona this week. “And now we are reclaiming it.”

European carriers including Royal KPN NV (KPN) have struggled to adapt to the surging demand for social media on mobile phones, with consumers increasingly circumventing traditional text message charges by sending free messages over the Internet. Operators lost an estimated $13.9 billion in SMS revenue in 2011, as subscribers turned to outside social messaging apps, according to researcher Ovum.

2 Billion Messages

WhatsApp, a U.S. start-up founded by two former Yahoo! Inc. (YHOO) employees, is sending 2 billion instant messages a day, up from 1 billion in October, CEO Jan Koum said this week.

The Joyn venture, which will be first offered by Vodafone and Telefonica SA (TEF) in Spain and by Deutsche Telekom in Germany, marks the first commercial attempt by operators to enable all their networks for instant messaging among users. Deutsche Telekom is also considering extending the service to its eastern European markets, Smit said.

“If they came to market earlier it would have been in a stronger position to combat these services,” said Neha Dharia, an analyst at Ovum. “Their traditional revenues from SMS are on the way down.”

Talmon Marco, CEO of Viber, an instant messaging service with more than one billion messages sent every month, is also skeptical.

“The days when most people are using the services provided by the telcos are coming to an end,” Marco said in an interview in Barcelona. “In a world where they all offer the same thing, partnering with the OTT companies will allow them to differentiate,” he said, referring to so-called over-the-top companies such as Google and Apple Inc. (AAPL) whose services take up operators’ network bandwidth.

Voice Over LTE?

Vodafone in November warned of the risk of the “substitution” of voice and SMS use with data services. The company has sought to move customers to bundles that include the different services.

Shares of Newbury, England-based Vodafone fell 0.8 percent to 171 pence at 8:24 a.m. in London. Deutsche Telekom added 0.7 percent to 8.88 euros in Frankfurt. Telefonica rose 0.7 percent to 12.96 euros on the Madrid exchange.

For the wireless operators, the real opportunity may come in the next update which will enable video calling over their faster fourth-generation Internet networks based on the faster long-term evolution technology. “It’s nothing more than connecting all the services,” Vodafone CEO Vittorio Colao said. “We need to do it for voice.”

Windows Phone

The service will put Joyn in direct rivalry with Skype, the world’s most popular Internet-calling service. British operators have resisted allowing Web-based calls offered by Skype, fearing that it will eat into their traditional voice revenue.

Vodafone restricts access to Web-based calls on its lower- priced tariffs unless subscribers pay an additional charge. France Telecom SA (FTE) and Deutsche Telekom’s U.K. venture bans access to external services.

Microsoft is stepping up its promotion of Skype, following its $8.5 billion acquisition of the company last year, by bringing out the first video-calling application on its new Windows Phone software.

“Is that going to be addressed by Skype? Yes, I guess so,” said Graham Trickey, who is coordinating the Joyn project.

A Skype spokeswoman said the company was watching the operator initiative closely and declined to comment further.

Joyn on IPhone?

The mobile carriers are working to persuade handset manufacturers to incorporate the application in all their devices. The venture suffered an early blow this week when Nokia Oyj (NOK1V) said in Barcelona it would pre-install WhatsApp on its new mass-market phones.

While Apple Inc. hasn’t agreed to allow the Joyn messaging application on its iPhones, the manufacturer may be compelled to offer the service on the device as operators build out the Internet-voice application, Smit said.

“I’m hoping they will come round” he said. “It no longer becomes feasible not to offer it because it’s the basic communications service.”

An Apple spokesman didn’t return calls and e-mails seeking comment.

KPN, the largest Dutch mobile phone company said in July last year it needed to increase smartphone bills to prevent subscribers going round its services.

“You can’t just have free services,” Smit said. “Because who is going to pay for it?”

To contact the reporter on this story: Jonathan Browning in Barcelona at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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