Skype for iPhone doesn't bode well for AT&T, telcos

April 01, 2009 11:42 PM EDT

Update: I've written more about this situation which seems to be spiraling here.

Skype on the iPhone 3G works really well.  In fact, it sounds better than regular calls over AT&T's network, at least on my iPhone in New York City.  This is bad news for the telcos.

I've used Fring and a few other Skype clones on the iPhone both jailbroken and from the App Store with mixed results.  From the first call on Skype for iPhone, I knew that this was something different.  The quality is fantastic.  I don't know if the iPhone version of Skype is using the new SILK audio codec, but my call to a friend across town sounded like no other cell phone call I've made.

Because I have both SkypeIN and SkypeOUT, I just effectively got a second line on my iPhone (caveat: only when I choose to have the Skype application running and only within Wifi coverage).  Hopefully, in iPhone version 3.0, Push notifications will keep incoming Skype call notifications active while the phone is on standby or another application is being used.  Speaking of iPhone 3.0, there are reports that Skype voice works over 3G.  In fact, it sounds like it works as well as Wifi.

While this is a feat in itself, it brings about the bigger question of whether or not I really need anything but a data plan on my mobile device.  If I can have effective VOIP which includes SMS messages and visual voicemail, free long distance for $60/year, why am I being charged $60/month (plus $30/month extra for data) from AT&T for less than that? 

At this point, I really only need data from the telcos.  To carry voice, I only need EDGE-type speeds.  That is a big problem for the telcos, they make most of their monthly revenue from voice, not data. 

At the moment, the telcos are artificially blocking competition from VoIP by barring mobile phones from using VoIP applications that work on 3G networks.  I am sure there are some government competition laws somewhere that this is violating.

But it really shouldn't even have to come to government intervention.  The market should dictate what technology wins out over what carrier.  For the carriers, it means who delivers the best data packets at the best value.

For the communications application technology, the winner should be the service that best meets the voice needs of its customers at the best cost.  At the moment, Skype and other VoIP carriers like Vonage can beat any mobile carrier's service hands down, at a fraction of the cost.

These applications are being blocked by telcos on phones but they aren't being blocked on Netbooks and MID's using 3G cards.   There are rumors that the carriers are slowing down VoIP packets or using QoS to down-prioritize their delivery, which may or may not be true. Skype is a pretty smart service, however, and usually finds a way around blockades.  Whenever I have limited-use wireless or am sitting behind a router with bad tables, Skype is usually the last application still able to make connections to the outside world.

So as netbooks and MIDs converge with mobile phones, where will the carriers draw the line?  Who can use VoIP and who can't?  The sad truth for them is that they won't be able to keep up the blockage forever.  VoIP is becoming a killer app on mobile devices.  

The first carrier to stop VoIP calls, besides running into Net neutrality violations, will also start losing customers.  At some point the door will fly wide open.  There are 100 trillion Skype users out there and they all want to connect wirelessly to their accounts.

(The ironic thing here for Skype is that they make their money only by connecting Skype to regular phones.  When everyone has Skype everywhere, their revenue model dries up.  The more popular they become the less money they'll make ... but their business model can change fairly easily.)

Because their voice service is so poor per the price you pay, the carriers voice services will no longer be viable and they will basically be left with just their core competency, selling packets of data.

(All of these mobile video delivery services will die out soon because the original content creators can deliver the content over the Internet without the carrier's special networks, extra charges or overhead)

The Internet is the great equalizer. Ask (what is left of) AOL.

Cradlepoint 3G WifiWhere does this leave me?  When my AT&T plan expires this year, I am leaving the telcos voice plans for good.  I plan on getting a Cradlepoint 3G-Wifi adapter that will be my personal Internet connection.  I will use whatever carrier's data plan is most competitive at the time.  I may be on T-Mobile for a few months, then Clear for a few months.  IF I move to an area with better Verizon service, I will go to Verizon.

Whatever carrier gives me the best service at the best value will win my business.  It doesn't matter.  My Skype number travels with me.

I imagine many will follow this course of action and, here's the good part: there is nothing the telcos can do about it.