Skype Goes Mobile

Skype's new cell phone will deliver mobile access to its service. The beleaguered carrier hopes to jump-start revenues overseas

Bit by bit, big names in the computing world are barging into the cell-phone business. First came Apple's (AAPL) game-changing iPhone. Next came word that Google (GOOG) is creating its own software platform for a new breed of cell phones. Now Skype (EBAY), which popularized free and cheap phone calls over the Internet, is set to launch a customized cell phone developed jointly with 3 Mobile, a wireless carrier in Europe, Asia, and Australia.

Code-named the "white phone," the Skype handset will be introduced by late October in Britain, Italy, Hong Kong, and Australia, and will reach 3's other five markets later, BusinessWeek has learned. There are no immediate plans to bring the device to North America, though the companies may try to license it to other carriers or sell versions straight to consumers for them to use on other networks.

Connecting with Skype Buddies

What may be most striking about the device is that it's being pushed by a mobile carrier at a time when most of the wireless industry is anxiously fighting to preserve its business model against a siege of new technologies and players. The major wireless carriers are fearful of upstart technologies that are slashing once-robust revenue streams from traditional home and office telephones, so they've made it impossible to use Internet phone services on most of their phones.

Indeed, Vonage (VG) and other providers of VoIP technology will have signed up more than 15 million U.S. homes and businesses by yearend, generating nearly $5 billion of revenue for 2007, says research firm TeleGeography. But on cell phones, VoIP is hard to find. "There are a lot of reasons why mobile VoIP has not yet taken off—and they differ by region," says Stephan Beckert, a TeleGeography analyst. "In the U.S., a key reason is that mobile operators are deliberately trying to keep their customers from being able to use it."

The Skype cell phone, developed with a software outfit named iSkoot, is equipped with multimedia capabilities and high-speed data for mobile Web browsing. But its most prominent feature is a big button right above the regular keypad to activate Skype's popular service for long-distance and international calls. A press on that button triggers an iSkoot-developed application that brings up a list of a user's Skype "buddies" and regular phone contacts. A click on any entry in that list dials the call.

Skype's Challenge: Turning Appeal into Profits

Skype is betting that easy mobile access to its service could spur more overseas call traffic, a revenue-producing business where growth has slumped sharply. Though Skype boasts 246 million accounts, only about one-quarter to one-third of those customers are thought to be regular users, and the vast majority of their calls are free. Skype has struggled to turn its popularity into profits since it was acquired two years ago by eBay (EBAY), which recently acknowledged it overpaid by $1.4 billion for the business (BusinessWeek, 10/1/07).

Calls on the Skype cell phone will cost the same as on a computer or Skype cordless phone: free when speaking to other Skype users, pennies per minute when users dial regular phone numbers in most countries. 3 Mobile, owned by Hong Kong's Hutchison Whampoa ( 2 Next Page

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