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.

  • Richard Bennett

    Skype works really well on the Three Network in Europe, thanks to carrier support in the network and a customized Skype phone. The advantage it has over standard GSM voice is the wideband codec.

    Dean Bubley is aware of this dynamic.

  • George Ou

    I didn’t say Dean was wrong; just that it was a curious statement. It was curious that he would say that it would be the *only* VoIP solution that would work well on LTE. If the carriers can make 3rd party VoIP work, I don’t see why they wouldn’t be able to make their own solution work.

    Also, Skype isn’t the only player with a wideband codec. Some carriers are already deploying wideband. Moreover, if Skype runs their own wideband codec and it has to be transcoded to a different codec, the transcode process drops call quality. This was one of the problems I have experienced with Skype out whenever calling mobile or VoIP phones. The transcoding process and a double compression process really harms the quality.

  • Richard Bennett

    Dean didn’t say Skype will be the only VoIP product for LTE, just that it stands a chance of being the only one with a large user base. Skype has built a very capable engineering group over the past year and has begun to transform their product in some interesting ways.

  • George Ou

    Well I guess if you put that many conditions on it (not carrier based and very large user base), I suppose it might be true.

  • Richard Bennett

    That is what he said.

  • […] Microsoft and Skype – The world’s largest PC-to-PC and PC-to-phone Voice over IP vendor Skype will merge with the world’s largest software company and leading game console maker Microsoft.  This will have a huge impact on the voice and video over IP industry and may even make Microsoft a mobile superpower (or may not). […]

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