Skype Goes Mobile

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A cheap international connection could prove to be a potent draw for wireless users. Currently, few mobile phone subscribers are willing to pay the quarters and dollars per minute charged by cellular companies for international calls. That means 3 Mobile is putting little international revenue at risk by moving to the Skype model. Another intriguing twist: Since eBay owns the online payment service PayPal, success with the Skype phone could provide a springboard for using a cell phone or other handheld device to pay for items, as if it's a charge or debit card. That's been an elusive goal for the wireless industry except in a handful of countries such as Japan and Korea.

A Tough Sell with Carriers

But even if it widens the path being carved by Apple and Google, the Skype phone is really more of a back-to-basics concept. The iPhone adds sleek Web browsing and the simplicity of an iPod music player to a phone. The gPhone (BusinessWeek, 9/13/07) seeks to bring Google's expertise, finding information and showing related ads, to a mobile handset. By contrast, the Skype phone is first and foremost about plain old phone calls.

Whatever the nature of these new services and phones, Apple, Skype, and even handset makers like Nokia (NOK) have found that it's difficult to get them into consumers' hands without the aid of mobile carriers—and their cooperation is rare. In the case of Internet calling, the industry's uneasiness has been especially palpable.

Mobile carriers such as AT&T (ATT) specifically prohibit VoIP on their phones in their terms of service. Verizon (VZ) and Sprint Nextel (S) have battered Vonage with patent infringement suits (BusinessWeek, 9/27/07) that may have as much to do with nudging the Internet phone company toward bankruptcy as protecting their intellectual property. And earlier this year, one of the top U.S. cellular companies put a last-minute kibosh on a plan by iSkoot to announce that its Skype application worked on some of that carrier's handsets. The carrier told iSkoot it was still determining its policy toward not only Skype, but VoIP in general.

The arrival of the Skype phone is but the latest sign of evolution in wireless, and counter measures by the cellular carriers a ready reminder that there won't be a revolution any time soon.

Meyerson is Deputy Technology Editor for BusinessWeek.com.