3 Launches Skypephone

3 Group and Skype Ltd. launched the much anticipated, co-branded, awkwardly named "3 Skypephone" today. Skype says it now wants to roll out the inexpensive device with other mobile operators in markets outside 3's territories. (See 3 Launches Skypephone.)

The imminent launch of the handset has hardly been a big secret lately -- 3 has offered Skype as part of its X-series mobile Internet services since the end of last year. (See Skype Phone Soon, 3's Bad Timing, 3 Plots Mobile Broadband, and 3 UK Prices X-Series.)

But now, the mobile operator and the Internet company have collaborated to develop a new 3G phone, which uses Qualcomm Inc. (Nasdaq: QCOM)'s BREW platform, that comes preloaded with the Skype application. Users can access Skype and their contact list by pushing the Skype button in the middle of the handset.

"It couldn't be more straightforward," says Ben Wood, director of clients at CCS Insight , who has one of the new gadgets. "I'm astounded by the quality of the phone. You notice a difference, but not big time delays."

The trick to good voice quality in 3's mobile VOIP application is that the Skype calls are initiated on 3's cellular network and sent to a gateway where they are then connected to the Skype network. The calls do not go over the Internet end-to-end.

The 3 Skypephone is more than a nifty new device that allows some people to call each other for free. The launch is important in terms of mobile Internet business models as well as 3G device pricing.

In the U.K., the 3 Skypephone costs £49.99 (US$103) on pre-pay packages when users top-up their accounts at least £10 ($21) each month. The phone is free for monthly contract subscribers. Skype-to-Skype calls and instant messages are free.

CCS Insight analyst Wood says this price point "breaks new territory" on 3G phone pricing. "This will raise the bar in terms of functionality and price," says Wood. "It will put pressure on some of the other phone manufacturers."

The 3 Skypephone will be available in the U.K., Australia, Austria, Denmark, Hong Kong, Italy, Ireland, Macau, and Sweden.

Skype's partnership with 3 is exclusive only in 3's markets. Skype says it wants to deploy the Skypephone with other mobile operators, but would not say when.

"Some [mobile operators] will be more proactive, and others will want to protect old business models," says Tony Saith, head of business development, mobile operators, at Skype.

Certainly not all operators will be as keen as 3 to embrace mobile VOIP, because some are still wary of cannibalizing current revenue streams.

"3 have less to lose… They can afford to take bigger risks," says Wood.

For Skype, the 3G phone is about making it easier for some of its 246 million registered users worldwide to connect when they're not at their PCs. Also, Skype is hoping to increase its user base to include people who don't have access to a PC.

As for 3, the operator positions the new phone as a mobile Internet play for a mass market.

There's a great deal of scepticism about anything that's free on a mobile phone," says Wood. "The Skype brand is synonymous with free, and 3 is using the Skype brand to reassure users that the [Internet service] is free."

Wood suggests that 3's deal with Skype may signal that other mobile operators will one day embrace mobile VOIP.

"3 can be indicative of the direction of the U.K. market," says Wood. [Mobile VOIP] is a bit of an inevitability. The proposition [3] has put together is quite innovative."

— Michelle Donegan, European Editor, Unstrung