Showdown: Carriers threaten to ban Skype from cellular networks

Chicago (IL) – The recent release of Skype for iPhone proved that yes, users are
interested in replacing their costly carrier voice minutes with free (or much
cheaper) VoIP calls — downloading the Skype application over one million times in just two days. The problem is, some carriers won’t allow it. Is Skype strong enough to battle these carriers and reduce them down to
dumb infrastructure providers, overtaking their services business?

Skype for iPhone and iPod touch
(8 pictures)

Telekom has threatened to block Skype on its European cellular
networks. Here in the United States, the agreement between Apple and AT&T
already restricts iPhone VoIP programs to Wi-Fi networks, though Verizon and T-Mobile allow competing VoIP services
like Skype to run on their cellular networks.

Skype for iPhone

appeared on the App Store this past Tuesday. It surpassed the one million
download mark in less than two days. Clearly, users see the value of Skype as an alternative to carrier minutes. “In less than two days, Skype for iPhone has been downloaded more than one million times — around six downloads every second,” the company wrote in a blog post.

Skype has also sparked criticism on Apple’s carrier partners which forbid VoIP programs on their cellular networks — limiting them instead to Wi-Fi
connectivity only. The agreements effectively limit users to placing
cheap VoIP calls only over Wi-Fi hotspots, which often provide less coverage
than cellular networks. Interestingly, if you use Skype on an iPhones running the developer
beta of the iPhone OS 3.0, it does let you place free VoIP calls to
other Skype users over AT&T’s 3G network, as noted by the 9 to 5 Mac.
Its reporter was able to make and receive VoIP calls over both
AT&T’s 3G and EDGE cellular networks.

ComputerWorld blogger Seth Weintraub wrote
that call quality with Skype on iPhone easily exceeds a regular voice

Skype for iPhone arrived this past Tuesday. Two days later, over one million copies have been downloaded — a clear indication that users prefer free or cheap VoIP calls to costly carrier minutes. Unfortunately, Apple’s agreement with carriers prevents VoIP software from using its 3G network, limiting the VoIP functionality to Wi-Fi networks, though not on the upcoming iPhone OS 3.0.
[Click for slideshow]

Deutsche Telekom:  No Skype on our networks!

As the Wall Street Journal reported,
Detusche Telekom (who runs T-Mobile and T-Com) is blaming Skype for
breach of iPhone contracts. Yesterday, the Telco giant threatened not only
to block Skype for iPhone from running on its cellular network, but on
public Wi-Fi spots under its control as well. The Telco giant defended this move citing strains that VoIP calls put on its 3G network, but Skype
disagrees — blaming the company for unfair business tactics.

“Technical concerns have no grounds,” Skype’s general counsel Robert Miller told Financial Times. “It’s much more about competition,”
he added.

Read on the next page:  AT&T and Apple to lift VoIP restrictions, Verizon and T-Mobile show love for Skype, the future of Skype

AT&T and Apple to lift VoIP restrictions this June?

While AT&T hasn’t yet blocked Skype VoIP calls on
iPhones that run iPhone OS 3.0 beta (as of the time of this writing), users
who run iPhone 2.x firmware (the current version) are greeted with the “call over 3G networks are not supported”
message when they try using Skype’s VoIP capabilities on the cellular network. Some suspect Apple and AT&T might lift their VoIP
limitation from their agreement with OS 3.0 this
June. In any case, AT&T’s example is an exception to
the nation’s carrier business practices that do allow VoIP service across their networks.

Verizon and T-Mobile allow Skype

Even if carriers start complaining about lost revenue due to Skype
VoIP service on their network, Skype’s COO Scott Durchslag indicated
the company might share its revenue, especially with carriers who are
reluctant to allow the service (like AT&T).

So far, T-Mobile and
Verizon do allow their respective Android G1 and HTC Touch Pro users to
run mobile Skype on their cellular networks. Verizon even allows their
no-commit users to run Skype, but it comes with a hefty price tag. For
instance, Verizon will charge a no-commit user of its $2 per MB plan
approximately $4 in mobile data charges for a 10 minute Skype VoIP call
to a landline, or $0.40 per minute. This excludes Skype’s charge for
the call that is billed separately of the mobile data fee billed by the
carrier. A typical Skype call consumes up to 6.25 Kbps of bandwidth bi-directionally (12.5 Kbps total).

  Skype’s general counsel, Robert Miller, rebuffed Deutsche Telekom’s explanation that it will block Skype for its European iPhone customers, both on cellular and Wi-Fi networks, over bandwidth concerns. “Technical concerns have no grounds,” Miller said, adding that telco giant is concerned for “competitive reasons.”


Skype to become bigger than
U.S. Steel carriers?

T-Mobile and Verizon allow Skype in the U.S., with
AT&T likely to follow the trend soon. That’s not to say that
nation’s carriers don’t feel threatened by Skype’s commanding lead in the VoIP market. To put it blatantly, carriers fear Skype may steal their
business and it’s easy to see why: The service enables free VoIP calls
between mobile and desktop Skype users. In addition, Skype offers cheap
international landline and mobile phone calls for at least 10 times
cheaper rates that carrier’s costly voice minutes, thanks to the Internet.

A typical Skype call to landlines will set you back 2.1 cents per minute
and up (see Skype’s call rates), compared with 35 to 45 cents per minute that AT&T charges for each additional minute spent outside of your voice plan (see AT&T’s call rates). You do the math.

Skype also enjoys undisputed credibility in the VoIP
market. The company has 405 million registered Skype users and over 17 million active daily users. Last year, Skype became the largest
carrier for international calls, having raked in $550 million with a
projected $1 billion in revenue by 2011.

The Skype for iPhone
application has now joined its previously released mobile Skype cousins for Windows Mobile
phones and Java-based versions that runs on hundreds of cellphones,
including many Nokia phones. A version for RIM’s Blackberry is due out in May.

With over 405 million registered users, and 17 million active daily users, Skype is the force to be reckoned with. The company hopes to grow last year’s $550 million in revenue to over $1 billion annually by 2011. Carriers fear the VoIP giant aims to steal their business. Skype’s COO Scott Durchslag said they may revenue share with carriers who are reluctant to allow the service, like AT&T. Picture above: The latest desktop Skype version 4.
[Click for slideshow]