Skype sets sights on wireless world

Internet calling service Skype has attracted hundreds of millions of users worldwide with the allure of free phone calls.

Virtually every gadget introduced at the Consumer Electronics Show in Las Vegas has one simple goal: to make every-day life simpler. Many also have a second purpose: to make every-day life cheaper.

Internet calling service Skype, while not a gadget, has been pursuing that goal since its debut four years ago, and has attracted hundreds of millions of users worldwide with the allure of free phone calls.

Like the rest of the internet, Skype is now deep into the process of migrating its service to the wireless world, onto mobile devices and cellphones. The company's vice-president and general manager of North America, Don Albert, discussed Skype's future with CBCNews.ca.

What's new at CES for Skype? You announced that Skype will be available on the Sony PlayStation Portable, but is there anything else?

The PSP was certainly an exciting one for us so users of the PSP can over an open Wi-Fi network use Skype to make and receive Skype calls. They can also make Skype Out calls if they have credit. Also with Sony, we announced the Mylo 2. Skype will be bundled on that as well. Obviously that's not so much a gaming device as the PSP is, it's more of an internet browsing and communications device, so you can do Skype text chats, Skype-to-Skype calls, Skype Out calls and if you have a SkypeIn number, you can receive your calls.

Also, Nokia's 810 internet tablet has Skype bundled on it. We also made an announcement with Intel that we've collaborated to create a special version of Skype that will work on their mobile internet devices. It's a special Linux version of our client that lets you interact with Skype through a touch screen, which is a new experience.

This isn't new news, but we're also showing people the three new Skype phones, since they're not available in this market.

Is the one that was launched in Britain?

Yes, we're working with Hutchison's 3 network on a phone that makes Skype a more integrated and intuitive experience. You hit the Skype button and see your contacts and you can make free Skype-to-Skype calls.

How hated is this sort of thing by cellphone carriers? It's taking money out of their pockets, isn't it?

Well, actually, we've partnered with a cellphone carrier. It's a partnership with 3.

OK, but how hated is it in North America?

What we're excited about in terms of this market is that we've launched and demonstrated a viable model for co-operating with an operator. 3 is very innovative and sees that having this sort of offering really differentiates themselves, acquire new users, reduce churn and also to capture additional international traffic that people weren't using their mobile for in the first place. Now that we've launched this we're involved in discussions with operators in other geographies and we have a proof case that we can point to.

How crucial is Wi-Fi, and having cellphones connect to it, for Skype's future?

The 3 phone is actually not a Wi-Fi device. We want to be wherever people want to make Skype calls and there are a range of devices that provide Wi-Fi connectivity, like the PSP and the Mylo. We want to enable Skype on those type of devices but we also think regular old cellphones are a great form factor. Our strategy is basically to enable Skype on mobile devices that our users want to use. Some of them are Wi-Fi devices and some of them are cellphones.

Why would somebody use Skype going over a cellular connection? Doesn’t that contradict what Skype is all about?

The way this works is that when you connect to Skype by hitting the Skype button we use the 3G network to get your account information and to display your presence information. Then when you actually click to make a call to another user, we use a circuit switch call to connect to Skype — so it's basically a local call, and from there Skype carries the call over the internet. The obvious advantages are presence — being able to see who's online and call them when you know they're there — and the second is the cost savings, especially for international calls. So even though you might have a flat-rate plan or even if you're pay-as-you-go, this is a real opportunity for the consumer to save a lot of money on international calling in particular.

There are many devices coming out with Skype on them, but there have also been cases of cellphone carriers blocking it. How have you been dealing with that?

We haven't really seen any specific cases where a carrier has blocked Skype. What the carriers have done in their terms of service is they say you cannot download or use any peer-to-peer software, machine-to-machine communications, Voice over IP software — so it's not that they're blocking it, they're trying to deny the use of it contractually.

One of the things we've done in the U.S. is we've filed a petition with the Federal Communications Commission, which asks that they apply the same 1968 ruling that allowed consumers to plug in their own phone, answering machines, modems, fax machines to the wireline network and use those because they don't damage the network. The principle is any application that doesn't harm the network in any way should be llowed to be used on that network. So we've asked that they apply that same rule to wireless networks.

The FCC has taken the first step in the 700-megahertz auction that's coming up. A chunk of that spectrum has been set aside to have those open access rules — open devices, open applications — applied to it.

So with the 3 phone, is this something that challenger carriers, perhaps the No. 3 or 4 carrier in a market, are more receptive to?

I would definitely describe 3 as being in that camp, as being an innovator and a challenger. That doesn't mean we wouldn't work with a leader.

Have you gotten anywhere with T-Mobile in the United States? As the No. 4 U.S. carrier, they would probably be in that camp as well.

I can't really comment on those discussions, but we're willing to talk to anyone.

Have you had any discussions in Canada? It's likely we will have new challengers springing up as the result of our spectrum auction in May.

I have to give you the same answer. Any operator that's willing to entertain this model, we're happy to speak with and certainly Canada is a very important market for us.

Last year, eBay said it overpaid when it bought Skype in 2005. How did the past year affect the way you do business?

I can't really speak to the eBay writedown specifically, but we're really proud of the progress we've made as a company. We announced after the third quarter that we crossed the 246 million user mark and added 25 million users just in those three months, so the growth has remained phenomenal. We reported revenue of $98 million U.S., which was up 96 per cent year over year. The irony is as a four-year-old company, looking at our revenue and user traction, we're actually further along than either eBay or PayPal were after four years.

Do you think eBay's statement, along with Vonage's legal woes last year, contributed to any sort of diminution of consumer confidence in VoIP services?

The first thing I'd say is that we work pretty hard to distinguish ourselves from the category of VoIP services that are really landline replacement services, because that's really not what we're trying to do. We're explicitly not positioning ourselves as a landline replacement, we don't offer e-911 service, we're just focused on offering a rich communications service with things like video calling. That distinguishes us from some of those other companies.

It hasn't really impacted Skype's business at all. One real endorsement for us was Wal-Mart's decision to include Skype sections in 95 per cent of their stores here in the U.S., which kind of meant that Skype is ready for the mainstream. That said, because the press do lump VoIP into a bucket sometimes, we do combat that perception sometimes. We're not seeing that impact our business. We have partnerships with companies like Intel, Sony, Motorola and Belkin that continue to add credibility to our story.

You don't offer SkypeIn in Canada because regulations require phone service operators to offer enhanced 911, which allows the operator to locate where a caller is. What are you doing about this situation?

That is the gist of it. We are working on it and we hear from Canadian users all the time that they want to have that available, so we've been working with partners who we think can help us with a solution there. We're hopeful that in the course of this year we'll be able to offer that.