Skypephone

Section: THE BUSINESS WEEK

NEWS

Its popular and supercheap global Net phone service is about to go mobile, with the help of a branded handset

Bit by bit, big names from the computer world are forcing their way into the cell-phone business. First came Apple’s game-changing iPhone. Next came word that Google is creating its own software platform for a new breed of cell phone. Now Skype, which popularized free or cheap phone calls over the Internet, is set to launch a customized cell phone developed jointly with a company called 3, a wireless carrier in Europe, Asia, and Australia.

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

The phone, developed along with a software outfit called iSkoot, will be equipped with multimedia capabilities and speedy Web browsing. But its most prominent feature is a big button right above the regular keypad to activate Skype’s hugely popular service for long-distance and international calls. Press the button and up comes a list of the user’s Skype “buddies” and regular phone contacts; click on an entry and the call goes through.

Skype calls on the 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, owned by Hong Kong’s Hutchison Whampoa, won’t charge extra for use of the Skype feature. But customers will need to spend a certain amount per month for other services, such as regular mobile calls, ringtones, or text messaging.

It’s striking that a mobile carrier is pushing Skype to its subscribers. 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 have made it impossible to use Internet phone services on most of their phones, fearful of how that technology has slashed away at once-robust revenue streams from traditional home and office telephones. Using voice over Internet protocol (VoIP) technology, Vonage and a growing number of cable-TV companies will have snared more than 15 million U.S. phone customers by yearend, generating nearly $5 billion in revenue, says research firm TeleGeography.

Skype is betting that easy mobile access to its service could spur more overseas call traffic, a revenue stream whose growth has sharply slowed. A cheap international connection could prove a potent draw for wireless users, who often pay dollars per minute when calling across borders. Though Skype boasts 246 million accounts, only about a quarter to a third of those customers are regular users and the vast majority of their calls are free. Skype has struggled to turn its popularity into profits since it was bought two years ago by eBay, which recently acknowledged it overpaid by $1.4 billion in the $2.6 billion deal. That write-down gave eBay a $936 million net loss for the third quarter, its first red ink in eight years.

Another intriguing twist: Because eBay also owns online payment service PayPal, a Skype phone could become a springboard to using a mobile device to pay for products and services. That has been an elusive goal for U.S. wireless carriers, though places like Japan and Korea have been doing it for years.

 

 

By Bruce Meyerson