Verizon-Skype Deal To Open Up Networks

By Richard Martin

The deal between Skype and Verizon Wireless (VZ), traditional adversaries whose growth has followed separate but parallel tracks since Skype was founded seven years ago, marks a turning point for the mobile and wireless industry – a before-and-after moment that at a stroke renders obsolete the conventional minutes-based business model of incumbent carriers not only in the U.S., but around the world.

Verizon and Skype announced a new free application for smartphones that will allow Verizon customers to make unlimited calls using Skype. Called Skype Mobile, the new application will be available in late March, the companies said at Mobile World Congress, the world’s largest trade show for the mobile and wireless industry, in Barcelona.

Russ Shaw, the general manager of Skype’s mobile business unit, elaborated in an interview with VON: “It’s a significant milestone, because up until today many carriers would look at us and say, ‘We won’t work with Skype.’ They see us as a potential threat. But with Verizon and ourselves coming up with this agreement to work together, now many more carriers are going to have to pause and rethink their strategy.”

Indeed, what happens next is almost certainly an elaborate mating dance as other major carriers queue up to make partnerships with other VoIP providers, not only Skype, but the dozens of startups that have sprouted over the last few years.

While the Verizon-Skype alliance marks the first time a major U.S. incumbent has chosen to partner with a VoIP provider, it is hardly the first of such cross-border pacts.

Two years ago, in one of the first major acquisitions of a VoIP startup by an established carrier, BT Group (BT) acquired VoIP provider Ribbit. And last month Telefonica (TEF), a major Euro telco, finalized its purchase of U.S. VoIP startup Jajah.

Earlier this month, Comcast Corp. (CMCSA), the nation’s No. 1 cable provider, agreed to purchase privately held VoIP provider New Global Telecom Inc. That purchase will mark the first major acquisition of a VoIP provider by a top-tier cableco.

It’s important to note that Skype calls will travel over Verizon’s circuit-switched 3G network, not the Internet, and customers must have a Verizon voice and data plan to use the service. Skype calls on Verizon, then, are not technically free, but they will not count against the customer’s pool of minutes.

Asked if Skype will make money off the application, CEO Josh Silverman said, “Sure we’re going to.”

The question, then, becomes, when will other carriers take the leap, and with whom?

In late 2009 AT&T (T) said it would allow VoIP applications to run across its cellular network, not just Wi-Fi, for the first time. The carrier had previously blocked IP-based voice apps for the iPhone from running on 2G and 3G networks in the past, including Skype and, famously, Google Voice. AT&T has not, however, announced a partnership with a VoIP provider. It will now likely be forced to.

Google Inc. (GOOG) last month said it has produced a Web app that functions like Google Voice on the iPhone – several months after Apple (AAPL) and AT&T effectively banned the popular voice, call management and text message service from the device. That app, though, does not include free VoIP calls; calls made through Google Voice on the iPhone are still charged to the user’s cellular calling plan.

To read the full, in-depth article on our sister site, VON, click here or on the source link below.