3 Skypephone and it’s impact on the Telecoms industry and walled gardens ..

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I was invited to attend the launch of the 3 Skypephone in London today. This was a meeting organised by Kevin Russell, Chief Executive Officer, 3 UK, and Michael van Swaaij, acting CEO at Skype for the launch of the 3 Skypephone.

The launch has made headlines all over the UK on mainstream channels like Channel five, BBC and others. In fact, I am on newsnight tonight (BBC2 10:30 pm) for this announcement as well! (The first time for me)

This announcement is getting a lot of coverage for the ‘free’ implications. However, there is far more to it than free Skype calls.

Hence, in this blog I will cover the basics which are significant in themselves and are getting a lot of coverage. Then I will add some more analysis about the long term implications of this announcement to the industry as a whole and to walled gardens

First the basics .. And these have got a lot of press today ..

Skype and 3 have launched a new mass market handset that lets you make free Skype to Skype calls and send free Skype instant messages from your mobile phone to other Skype users. The 3 Skypephone is a fully-featured 3G Internet phone with Skype built-in(The phone has a prominent Skype button). In addition to Skype calls the phone makes conventional calls and can be used to access 3’s other internet services.

Note that, Skype calls existed on 3 before. The difference today is mass market phones and deep integration(the Skype button)

All of the above is great .. But lets look beyond the free calls as to why this is significant for 3, Skype and the industry as a whole.

a) The phone is all about communication. Anything that brings people together is good from a user standpoint. Hence, if we consider the phone primarily as a communication device, then access to Skype(one of the biggest communication mechanisms on the Internet) is a good thing from the customer standpoint.

b) The customer sees one communications platform – hence in the customer’s mind – the Internet and the Mobile Internet world should be seamless. Hence, no walled gardens – and leaning to an OpenGardens philosophy.

c) The Internet in general and Skype in particular are free. And ‘free’ is a word the Mobile Operators dread ..

d) So, the perennial question arises – what happens when these two worlds(with their different business models) are brought together?

Lets look at it from 3’s standpoint. Three introduced fixed rate pricing through X series which I then said was very disruptive in a cheekily titled headline: The future is bright .. the future is Three. Today, other operators have tried to copy similar price structures. This is good for the industry but fixed rate pricing alone is not enough. The services are needed as well.

Which services? Ones that have been successful on the Internet. And it does not get any bigger than Skype.

Hence, the first observation is .. The 3Skypephone should be looked at as an extension of the broader 3 Xeries pricing announcements last year.

So, yes while this is about fixed rate pricing .. But it is also about getting exposure to Skype’s 246 million registered users.

With 100% market penetration in most mature western markets, this is an untapped area of growth for Operators and therein lies the potential of this announcement.

The second observation pertains to the ‘unified address book’. I have long talked of the unified address book as the holy grail which Operators will aspire to get to (because without services like unified address book, initiatives like Fixed to mobile convergence(FMC) make little sense).

Now, if we ask ourselves – what is our most important address book? To most people it is their phone address book and increasingly their Skype address book . Thus, we can now merge the two address books or liberate the Skype address book from the confines of the PC. The access to a unified address book is a huge win for the customer; and hence for both Three and Skype.

Thirdly, because the service is simple and easy to use, I believe it no longer remains ‘geeky’ i.e. becomes much more mainstream

And Finally .. How will we react to presence on the phone for the first time? The youth are already used to this. So are many of us who are already Skype users. How will our behaviour change with presence? Will we call someone because we see them online? (instead of having an explicit reason to call)? or will we now start using the Skype voicemail feature more by adopting a form of asynchronous communication based on leaving each other messages on Skype?

Thus, I see this announcement as very significant but also an evolutionary announcement. 3 is learning to work with Skype. And it will continue to do so(Skype existed on Three already – so this is an enhancement of an existing relationship). Skypeout may be next for example – and this means Operators who follow will always play catch up.

All this will give Three a first mover advantage.

Skype also benefits by being ‘in the pocket’ and potentially being now the centre of communications – both fixed and mobile.

Finally, to really understand the vision of OpenGardens, the breakdown of the walled gardens etc – you have to understand the impact of Reed’s law, Moore’s law and Metcalfe’s law.

I have had long discussions with Professor Ed Candy, Technology Director of 3 on these three laws. I admire Ed’s views and in my view, Ed is one of the few people in the Telco space who has the vision to understand the true impact and revenue potential of the Internet.

A discussion of the three laws and their impact on the Telco space is a topic for another blog.

However, what we have to remember is: fixed rate pricing is only the beginning and not the end! In that sense, other operators can copy the fixed rate pricing model and be mistaken that they are being radical when they do so .. but many will cringe when they realise that fixed rate pricing was just the beginning. There is much more change to come.

And without understanding the impact of Reed’s law, Moore’s law and Metcalfe’s law (i.e. services exhibiting the network effect) .. adopting fixed rate pricing alone will only take them on the road to being a pipe.

In conclusion, if we accept that business models are going to change(and with the rise of the iPhone even the most conservative person cannot ignore the changing business models), then the entity who can navigate this disruption in advance and on it’s own terms(i.e. proactively rather than being forced to react to market changes), will be the winner. That’s why I believe that this development is disruptive.

I will blog more on Reeds Law, Moore’s law and Metcalfe’s law and their impact on the Telecoms industry.

Any comments welcome ..

Official web page and press release is HERE

Comments

  1. Simon says:

    The timing of 3/Skype’s announcement is interesting – reinforcing as you say the philosophy of open systems. This week iPhone launches in the UK locked into O2, with a growing base of Apple diehards becoming increasingly frustrated at this closed ecosystem approach. It’s an interesting contrast.
    I just posted on Apple here (http://brandsdigitalmediaandme.blogspot.com/2007/11/apple-faithful-dial-m-for-mutiny.html)
    I look forward to a debate on Metcalf and Reed. I agree, very fundamental to understanding value shifts as new models emerge.
    Best
    Simon

  2. Great article,
    The Skypephone is sure to change the industry to some degree but the current hype seems to be surrounding the impending launch of the iPhone.