Mobile networks are only networks

By January 9, 2009Mobile, TV

Yesterday Skype announced the release of a lite version of Skype that will run on Android phone and java-enabled phones.  Right now to use the Skype service you need to have a calling plan, so the carriers are OK.  But over time you have to think that will change – it is only a matter of time before an operator or MVNO breaks ranks and offers a data only Skype phone.  Then the house of cards will fall.  There is some similar analysis here.

As we have seen in the fixed line world, at the end of the day networks are only networks.  Their customer relationships put them in a great place to sell other services but in the long run forcing people into bundles that they don’t need is not a recipe for success.

This announcement brings the inevitable future a step closer – which is a good thing for the mobile internet.

I also think the internet will bring same unbundling logic to television where I predict we will see a separation of access and programming.

  • um… Not really, no.
    Long version:
    Conversations about Skype on mobile tend to confuse price arbitrage with technological disruption. Mobile operators are selling capacity labelled as 'data' at lower prices than that labelled as 'voice' because they want to drive adoption, and because there's not many people using it. That means that you can get 'flat rate unlimited data' for much less than it would cost to get flat rate unlimited UK calls, say. A by-product of this is an opportunity for a voice price arbitrage game which Skype (or any other VOIP player) can play. But Skype doesn't provide any real underlying technology improvement – the appeal of the presence-based address book etc is far outweighed by the fact that it uses 2-3x more wireless network capacity than a circuit-switched call.

    In other words, mobile Skype isn't a better technology – it's a way to hack price plans.

    On a small scale, no-one will care much except people like us. But ultimately all that a price arbitrage game can do is roll up an artificial difference in pricing, and push market prices towards the underlying economics, and that can work in both directions. In this case, the artificiality isn't in the voice prices – it's in the data prices, which are artificially low for a variety of reasons (marketing, empty networks…). So, if this VOIP arbitrage game becomes a big deal, it will be squashed, or the tariffs adjusted to make it pointless. You can have flat rate data for £5/month – if you buy £40 of voice. Or vice versa. These are just labels – there is no ' £5/month unlimited usage' proposition waiting to be unbundled and sold by itself.

    This is because of the biggest thing internet people tend not to understand about mobile: that mobile operators have a significant marginal cost of carriage. Adding more traffic costs them money, and operators set their pricing based on the money they need to cover their costs at a given level of usage. The rest is just labels and marketing. If you're using the same underlying network capacity for 'data' instead of 'voice' then you will ultimately have to pay the same, regardless of the label. Sorry.

    SHORT VERSION:
    Mobile operators will only be willing to offer a £10/month Skype-friendly data-only tariff at the same time as they're willing to offer the equivalent flat-rate deal for conventional voice. They'd probably never be able to cover their costs at that point, but if they did, why bother with Skype anyway? Clearly, you need to hire me to explain all this in more detail 😉

  • Benedict – I don't think we are saying radically different things. Voice is just data after all. Further, I didn't comment on price in my post – and ultimately the charge per packet should be the same whatever it contains.

    What irks me about operators at the moment is that they are using their position in the voice market to control data services – and holding up innovation in the process. The Skype announcement weakens that control.

    Thanks for the well thought out comment.
    Nic Brisbourne
    Partner, DFJ Esprit
    Email: [email protected]
    Tel: 07990 567 993
    Blog: http://www.theequitykicker.com

  • Benedict – I don't think we are saying radically different things. Voice is just data after all. Further, I didn't comment on price in my post – and ultimately the charge per packet should be the same whatever it contains.

    What irks me about operators at the moment is that they are using their position in the voice market to control data services – and holding up innovation in the process. The Skype announcement weakens that control.

    Thanks for the well thought out comment.
    Nic Brisbourne
    Partner, DFJ Esprit
    Email: [email protected]
    Tel: 07990 567 993
    Blog: http://www.theequitykicker.com

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