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A Crack in the Wall? Apple, RIM, and Nokia Bring Skype to the Handset

Comment by William Stofega


IDC Opinion

Mobile device OEMs and Skype are opting to step around the operator in providing the voice over IP application preloaded on devices. The opportunity for end users is the ability to leverage unlimited calling over a data plan. The objection from operators is that valuable voice minutes will be cannibalized by unlimited calling taking place over the data network — which lends itself to the operators' second concern, which involves increasing data traffic for voice calling. Highlights include:



In This Insight

This IDC Insight summarizes announcements by several mobile handset manufacturers to preload a Skype on their iconic devices, including the Apple iPhone, Nokia's soon to be released N97, and RIM's BlackBerry Bold and Curve devices.


Situation Overview

For several years, IDC has argued that to truly succeed, Skype would need to "cut the cord" and make the leap to mobile devices. For a number of reasons, mobile operators have not been especially fond of granting Skype access to their network and their subscribers, prompting some to cry foul with promises to revise the Carterfone decision, albeit with a new mobile slant. In restricting Skype, operators have cited concerns about call quality, scarcity of cellular resources, and potential security issues.


From an operator's perspective, allowing Skype to ride via an all-you-can-eat data plan could potentially overload its cellular network. Operators are further motivated to restrict Skype in light of mobile voice average revenue per user (ARPU) gradually declining in the United States. Operators are adamant that Skype stays beyond the reach of its customers. Most operators have included restrictive language in customer contracts that clearly indicate permissible use. With a few minor exceptions, mobile operators have been successful in keeping Skype packets off of their network, given their control of the network as well as considerable input from handset manufacturers. However, the introduction of the iPhone, as well as devices from RIM and Nokia, has given the device manufactures leverage over the operators in terms preloaded applications and features. This shift is primarily due to the ability of iconic devices to increase ARPU, especially data; attract new subscribers; and contain churn. Of course, the announcement has already sparked controversy from operators. Nokia has reportedly incurred the wrath of O2, Orange, Telefonica, T-Mobile (Europe), and Rogers Wireless, while Apple's announcement elicited the following response from AT&T public policy executive, Jim Cicconi, as quoted in USA Today: "[AT&T] has 'every right' not to promote the services of a wireless rival" and "absolutely expect our vendors not to facilitate the services of our competitors." The response from AT&T has prompted several public interest organizations to file letters with the FCC, perhaps forcing the commission to take a stand on net neutrality, which in turn will lead to Federal litigation.


Whether subscribers will actually get to use the Skype application on their mobile handsets is unclear. However, we view this attempt by the handset vendors to control what applications can be presented on their handsets as part of a larger battle that pits applications, software developers, and handset manufacturers against operators. There is little doubt that the demand for services like Skype is high. According to Scott Durchslag, Skype's chief operating officer, "Skype software for the iPhone has been the number 1 request among our users." Unfortunately, given the stakes involved, it is unlikely that subscribers' needs will be taken into account.


RIM's, Apple's, and Nokia's plans for Skype are as follows:


RIM. On March 31, Skype announced that the lite version of Skype, a thin Skype client for mobile phones, would soon be available as a free download for RIM devices. A beta version will be available in May for the Bold and the Curve, with support for other RIM devices coming later. Some of the details around the RIM/Skype partnership are:



Nokia. At Mobile World Congress in February, Nokia and Skype announced a partnership that brings together the VoIP provider's services to Nokia's portfolio of mobile devices. The first devices with Skype embedded will be Nokia's Nseries — with Nokia's new N97 device being the first option available to consumers in the third quarter of 2009. Some of the details surrounding this partnership include:



Apple. Skype for iPhone, is available from the Apple App Store. In addition to the iPhone, the Skype client also enables calling and instant messaging to any second-generation iPod touch device with a compatible headset and microphone. The application will enable the following Skype capabilities, including:



Future Look

Although the iPhone announcement carries with it a high level of hype and publicity, Skype has hardly been working on porting Skype to Android-powered devices and more than 100 other Java-enabled mobile phones. In addition, Skype for Windows Mobile has been in the market for several years and has been downloaded more than 12 million times. The news that Skype would appear on the iPhone has created a rush to download and install the application on the iconic device, with reports of over 1 million downloads in two days. The news, coupled with announcements by RIM and Nokia, has certainly increased the potential for Skype; however, on April 1, a day after iPhone announcement, Skype's parent, eBay, disclosed the following details in a filing with the U.S. Securities and Exchange Commission:


On March 12, 2009, Skype Technologies SA filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited, a BVI company.


In connection with the license agreement between the two companies, Skype licenses peer-to-peer communication technology from Joltid, and Joltid has claimed that Skype has breached the terms of the license agreement. Following the filing of the claim, Joltid purported to terminate the license agreement. In particular, Joltid has alleged that Skype should not possess, use, or modify certain software code (the "Code") and that by doing so and by disclosing the Code in certain U.S. patent cases, pursuant to orders from U.S. courts, it has breached the license agreement.


On the basis of, among other things, the parties' mutual dealings since the execution of the license agreement, Skype is asking the English High Court for declaratory relief, including findings that:



Going forward, the challenge for operators is managing the need for quality mobile applications to drive data ARPU and the network congestion concerns they have around too much data traffic clogging up the pipe. With 3G mobile broadband seeing real traction in North America and Europe through an increasing number of 3Genabled to operator success and perhaps making the network capability of more traffic needs to become an even more urgent priority. Skype is but one application that will drive consumer and business usage of the cellular network. If the network isn't prepared for this inevitability, then what do they do in the future when our mobile society demands access to anything, anywhere, at anytime.