Will Skype really kill the cellular voice business?

Will Skype really kill the cellular voice business?

Since the announcement of Microsoft’s acquisition of Skype, a lot of people are once again declaring the death of the cell phone company.  But people have been saying this for years.  It has yet to happen, and is not likely to as a result of the Microsoft Skype merger.  Some analysts on the subject are not making much sense.  Craig Moffett told Business Week that:

“If Internet-calling technologies gain in popularity on mobile devices, wireless operators may respond by changing prices. Carriers may raise the price of using their networks by boosting the cost of data plans”

What business dynamic has changed to justify this?  Skype is already available on Smartphones today with no 3G restrictions and it hasn’t taken off.  The carriers can do what they’re doing today — only offering subsidized Smartphones to customers who sign on to a data and voice plan.  So far this has made over-the-top VoIP services unattractive to most Smartphone users, but Moffett goes on to say:

“The simplest thing will be new pricing plans where they will shift more of the price burden onto data plans to insulate them,” Moffett said. “There’s a clear vision in the technology community that voice and text aren’t businesses, they’re applications.”

Why is it a foregone conclusion that people are automatically going to jump onto an over-the-top VoIP solution on their mobile phones?  They can do this today.  For the most part they are not, because people are buying voice & data contracts to discount their $600 smartphone to $200, paying for voice minutes on the most reliable voice system.  Why would they switch because they have been offered another service for an additional monthly cost for a capability they already have?  While there are certainly those who use VoIP solutions on their smartphones and notebook computers, but they are on the bleeding edge of technology, not the mainstream.

Dean Bubley goes on to make some curious statements about Skype being the only VoIP system that works well on an LTE network.  Bubley says:

“I think that some of the operators that are less aggressive about deploying LTE – especially for smartphones – are doing so partly because of doubts about getting VoIP to work properly, to a degree comparably-good with GSM telephony today. Skype has a significant chance of being the only massmarket VoIP that has a big user base, and works well on LTE, by 2014. The “option value” for that is potentially huge. Hence AT&T and Vodafone on my “other possible acquirers” list – I also would have added Hutchison 3 and maybe Telenor, but the price is too high.”

The cellular phone has access to an even larger user base without the need to transcode audio compression which produces better quality.  Why would Skype work better on LTE than carrier implemented VoIP over LTE or carrier circuit switched voice?  If the carrier implements VoIP over LTE, they would likely do so on a higher priority queue on their IP data network.  If the carrier stayed with the current GSM or CDMA voice system, it’s still better quality.  If Microsoft-Skype implemented over-the-top VoIP over LTE independent of the carrier on a best-effort delivery basis which is subject to fluctuations in latency and quality, how would this work better than carrier VoIP over LTE?

This notion that a delay in the implementation of VoIP over LTE means that Skype can take advantage of this and somehow fill the void better than the carriers is misguided.  If the current circuit switched cellular voice system is the quality standard that VoIP over LTE is trying to reach, how does Skype or any other over-the-top VoIP provider beat the current system in terms of quality?

The more plausible future is that there might be some sort of partnership between Microsoft-Skype and the Wireless carriers rather than displacement.  Microsoft-Skype gets more integration into the wireless network by sharing some call revenue with the infrastructure providers and the carriers get better integration with the Microsoft and Skype user base.  This incremental evolution of business models doesn’t sound nearly as interesting as the notion of a disruptive upstart unleashing creative destruction on the wireless establishment, but it makes more sense.  If Microsoft and Skype want to enter the wireless voice market, they will likely join the wireless carriers rather than destroy them.