Mobile Skype Update

The antipathy of some mobile operators to their customers using VoIP services like Skype over their networks (see our earlier post) looks set to heat up further. UK operator 3 has announced that from May 1st 2009 it will offer Skype-to-Skype calls and instant messages for free over its data network. It is not clear from the announcement whether users will be able to make calls to and from the public telephone network (i.e. involving normal telephone numbers), for which they would presumably pay Skype, rather than 3, though other commentators have suggested that this will not be possible.

Perhaps more importantly, 3 plan to make the service available over the summer to anyone with a compatible and unlocked 3G phone - in other words to users of competing networks. Presumably the thinking is that once a user has a 3 SIM card in their phone, it will be easy to persuade them to take additional paid-for services. Despite 3's claim that "Skype is only available for free with 3 because we don’t think you should have to pay for mobile phone calls anymore." - an unusual sentiment for a mobile phone company - this would probably include paid-for calls, since this is likely to be the only way to reach people who don't have a Skype account, or are not online.

It will be interesting to see how people use this new service. One option would be to put the £1.99 SIM from 3 into a spare, or second-hand, phone for separate Skype use, to avoid having to swap SIM cards. This would be less promising as a basis for enticing Skype-only customers into taking other services. Of course another option for someone with a reasonably high-spec phone is to use a service like Fring, that runs as an application on the phone and enables Skype or other VoIP calls to be made over mobile or WiFi networks without changing the SIM card.

CARTER HAS A CHALLENGE ON HIS HANDS AS GLOVES COME OFF IN DIGITAL BRITAIN DEBATE

Lord Carter has received over 200 responses to his interim report on Digital Britain, and now faces the challenge of reconciling many different views and standpoints without recourse to primary legislation and without legal challenge. Responses come from across the spectrum (apologies !) of the business, with the creative industries (“poets”) outscoring the telecommunications industry (“plumbers”) on the list of respondents published on the DCMS site.

I reckon these responses break down as:

Commercial telcos/ suppliers
12 responses; BT, O2, Vodafone not listed, presumably confidential responses

Creative industries – commercial
13 responses; similarly the main broadcasters (BBC, ITV, 4) not listed

Communications Industry groups
18 responses, including engineering groups

Councils/RDA/Community groups
14 responses; surprisingly several Community Broadband Network groups are not listed; includes Upper Deverills Parish Council !

Creative industries - industry groups
34 responses - the most active group; wide range of organisations covering film, TV, print, radio, libraries

Public interest organizations
3 concerned about rights, 1 about security and 1 child protection

Unions/political parties
5 unions and the Green Party

College/research groups
3 responses

Individuals
14 including two responses from academics and two from MPs

Others
7 responses; eg British Space Centre

At a macro level this represents a lot of different standpoints at different places in the value chain – a nightmare to resolve. But even within distinct parts of the market there are deeply entrenched views. Here are a few comments on those responses I’ve managed to get through so far – contact me if you want more.

“PLUMBERS”
No way are Vodafone and O2 going to give up spectrum without a fight. Despite the best endeavours of the ever-charming Kip Meek from BSG, this one looks like going to the wire. In its tussles with the regulator and Government, BT eventually learned that short-term wins often translated into longer-term problems – this penny has not dropped for these guys yet.

BSkyB wants Virgin Media to open up its network by offering wholesale products, are against public subsidies for USO and want duct sharing. BT will have pointed out the practical difficulties of duct sharing and will be wary of a USO fund (they’ve played that sort of game before). Virgin also favour a market-led approach, but “keep your hands off our network”. The Number (118 118) are more concerned about service provider competition, good wholesale products and Voice over Broadband.

“POETS”
Here the Channel 4/PSB issue is a key focus of debate. Sky and Guardian Media Group (GMG) want controls on the BBC and a market-led approach to PSB. Five is trying to hang on in there with the idea of linear TV and its PSB role (keeping its C4 arguments behind the scenes). The NUJ wants the spectrum released from the Digital Dividend to be earmarked for the PSB. The Beeb’s response is not on the DCMS site, but SamKnows reports that they are keen on playing a “central role” in partnership with other media players, opening up iPlayer for other broadcasters.

Carter’s proposal for a Rights Agency gets a lot of attention. There is almost uniform agreement that piracy is bad, that protecting rights is essential to ensure investment in creative industries. The Design and Artists Copyright Society is concerned that small players will lose out. The “Alliance against IP Theft” ( a collection of 21 organisations mainly focused on the film industry and video games) want a clear role for the Agency (focused on illegal downloading), but for commercial issues to remain managed by the private sector. Even the Premier League get in on the act, demanding protection for their IPR and looking for the Rights Agency to be given clear direction.

GMG also raise the issue of value disappearing to search engines and other aggregators and want Carter to help them keep control of some of this.

COMMUNITY GROUPS
The views of community groups on network issues are more consistent: “we must have superfast broadband”; a “digital divide” or “two-speed Britain” is a bad thing; “the broadband USO does not go far/fast enough”; and “BT won’t do it, so Government should fund it as a means of economic recovery”. Digital Birmingham argue for public investment in duct; eHampshire want support for local community networks and for Building Regulations to insist on fibre installation in new homes; the RDAs suggest public sector procurement as a way forward; and Upper Deverills Parish Council are using all their influence to press for a faster USO.

THE FREE-THINKERS
There are enthusiasts for 4G and internet radio, concern over the problems of migrating to DAB, and demands for better funding of talent development. The Green Party want mobile base station sharing to reduce energy use and spectrum allocation which allows energy-efficient solutions.

So best of luck Lord Carter – there’s no way to please everyone. Personally, as a “plumber”, I find the “poets” arguments generally self-serving, idealistic and uncommercial, when sharing value with those building the networks has to be the only way forward. However, as the media likes nothing more than talking about itself, I’m sure that’s what we’ll be hearing most about in the coming months.

Banning Mobile Skype

T-Mobile has reportedly threatened to disconnect users of the iPhone in Germany and four other European countries where it has a distribution deal with Apple for the “Jesus phone” if they download and use the Skype application. This is not the first time that T-Mobile have encountered adverse publicity for blocking, or attempting to block, the use of VoIP by users of their service. However, in this case the application only works over the iPhone's connection to local WiFi networks and not via T-Mobile's data service. The operator's suggestion that there may be issues of technical compatibility seems rather unconvincing and is denied by Skype, making the bad publicity worse still.

It is entirely understandable that mobile operators should be concerned about customers whose expensive handsets they have subsidised rendering that investment worthless by avoiding paying for calls. A top-of-the-range iPhone sells on eBay (Skype's parent company) for around $630, though presumably an operator would pay somewhat less and European mobile operators such as O2 in the UK are prepared to give their subscribers one of these for free, in exchange for a hefty £44+ per month subscription. Apple's deal with their franchised network operators unusually involves them getting a share of network revenues and perhaps it is for this reason that they have ensured that the Skype application is limited to calling over WiFi, rather than over 3G or other mobile data networks.

Thankfully for the mobile operators, their immediate predicament is scarcely dire. For one thing, the customers with whom the risk is greatest, those whose handset is heavily subsidised, have (like O2's well-heeled, or gadget-crazy, £44+ per month set) already committed to pay for their minutes whether they use them or not. Even pre-pay customers, who will have paid nearly £400 for a 16Mb 3G iPhone, are likely to find it more convenient to make their calls in the normal way over the GSM network. Perhaps it is for this reason that some mobile operators, such as Vodafone in the UK, have apparently so far refrained from blocking or forbidding the use of VoIP over their networks. Others, such as Huchison's 3 UK have come to commercial terms with Skype and made a virtue of it. Even those who use a VoIP application that has not been blessed and taxed by the operator, such as Fring or Gizmo, may find themselves paying a not-insignificant amount to their operator for the data connection.

Nevertheless, as mobile data becomes cheaper and faster and as the VoIP applications become slicker and better-integrated with the phone's basic functions such as call buttons and directories, very large amounts of currently profitable revenue from both voice calls and text messages are at stake for the mobile operators. This is underlined by over a million downloads of the iPhone Skype application in its first two days - making it the number one download from the App Store in 40 or so countries around the world, including Germany, according to Skype.

T-Mo is not alone in blocking the use of Skype and other VoIp services on their networks through technological and contractual means. So do all the other mobile networks in Germany and their French counterparts do the same, as does AT&T in the US, raising calls for regulatory intervention and not just from the likes of Skype. The VON Coalition, for example, a pressure group which includes, amongst others, BT, Microsoft, Intel, Cisco and Google (and, at least as recently as last year, T-Mobile USA), reportedly argues that

"Blocking of voice applications on mobile devices, such as the announcement of T-Mobile to block Skype on iPhones in Germany, is highly detrimental for consumer welfare in Europe".

The VON Coalition describes itself as:

"Member supported coalition of service and software providers and equipment manufacturers organized to advocate and educate policy makers and regulators the viewpoint that the IP Telephony industry should remain as free of governmental regulation as possible."

Never mind the potential irony of such a body calling for regulatory assistance, the tenor of arguments so far advanced is that of net neutrality, or as Robert Miller (Skype's General Counsel) puts it:

"Skype passionately believes that consumers should be entitled to access an open Internet on a variety of devices and on fixed and mobile connections to the Internet."

Unfortunately for them, network neutrality seems to have failed to ignite the same degree of emotional intensity in Europe as it has in the US - perhaps because Europeans believe that if their ISP restricts their access to information or applications unreasonably they can always switch to another one. And, as Miller wistfully points out, current EU legislation in front of the national Parliaments would not help much, requiring no more than that service providers inform their customers first if they are going to restrict traffic in this kind of way.

Whilst the network neutrality debate is probably not yet over in Europe, it might be worth considering whether there are other red rags to the regulatory bull here. This would very probably turn on whether each national regulator deemed that the network operators had Significant Market Power (SMP) in the relevant market (and there might be some debate about which market that would be) and, if so, whether blocking or forbidding access to VoIP services is an abuse of that power.

One problem is that the most likely Market, as defined within the Framework, is Access and Call Origination on Mobile Networks, which was deleted from the list as part of the 2007 reforms, meaning that it is not a requirement for national regulators to carry out regular reviews of the extent of SMP and of the remedies they should apply. It does not mean that EU and national regulators will not take action, though, as has recently happened with the prices charged for calls when one is outside the country in which one's phone service is registered. But action would most likely only happen if regulators are spurred on by public concern and lobbying.

Network operators, for their part, are likely to argue (again) that the loss of profits they make from calls and texts would lead to them cutting back on investment and force them to raise prices, forcing vulnerable consumers off the network.

The glass-half-full view would be that the regulators are (implicitly) right and market forces will not allow what consumers want and technology allows to be blocked by suppliers for very long. After all, T-Mobile's earlier apparent démarche in the UK and the indignation surrounding this latest incident suggest that using restrictive contract clauses and network blocking to strong-arm customers away from using VoIP has about as much chance of longer-term success as the record companies have of stopping illegal copying and downloads of music tracks by brandishing copyright laws.