Skype is the new Carterfone

I’ve been wanting to write all week about Skype’s new iPhone client, which has been long desired, recently rumored, and finally released Tuesday at CTIA to considerable accolade.

Given a chance to mull it over, I believe this will prove to be the watershed in the end of operator control of mobile wireless networks.

A key issue when the iPhone was announced two years ago was AT&T’s ban on VOIP and other IP-based technologies that would use its data network while rendering its voice network obsolete. Apple was put in the odd position of promoting iChat as its ubiquitous peer to peer messenger and videoconference system, but blocked from offering it from day one (and even with the iPhone 3G) by operator restrictions.

Since 2007, Skype has been trying to win a Carterfone-type ruling from the FCC to require open device interconnection over mobile networks. The US operators — particularly Verizon and SBCAT&T — have been fighting it bitterly. There’s no resolution yet, although the carriers seem likely to lose with Democrats in the White House for the next 4+ years.

It’s not just a US issue. Major European cellphone operators like T-Mobile, Orange (France Telecom) and Vodafone kept searching for that river in Egypt in hopes that mobile VoIP will just go away.

However, with the new iPhone app Skype has brilliantly finessed the issue by making it (perhaps temporarily) Wi-Fi only. There’s no legal way for AT&T or Apple to block it — with serious antitrust implications if they try — and the full Skype functionality is available at home, at work and at many public hotspots (including a lot of medium-sized airports).

So if I can’t Skype over AT&T, I’ll Skype over Wi-Fi. Skype (and competing VoIP) clients will be Wi-Fi enabled on all the major smartphone platforms. Skype is already on Windows Mobile, and Skype for BlackBerry is due in May, and presumably Symbian and Android are not far behind. (I'm not sure how they plan to make money beyond fairly weak freemium offerings, but that’s another story).

If the 3G network doesn’t actually provide Skype service, the cost sensitive and technologically savvy (like college students) will just use a phone (or PDA like an iPod Touch) without a data plan and do most of their calling at their local Panera. I also think this will (perversely) further commoditize Wi-Fi hotspots, because coffee shops (etc.) that offer free Wi-Fi will steal traffic from those that do not until free becomes the norm (except maybe in dominant airports where there is little choice.)

Together, this will cannibalize the operator revenue growth the way that mobile has done to landlines and IPTV is starting to do to cable and dish. Skype (with cash from parent eBay) and its knock-offs will put a cap on what people will pay for semi-reliable voice service

This is the beginning of the end of 30 years of mobile phone revenue growth. On the regulatory front, it’s time to tip the king as the outcome is decided. Will the carriers admit that they can’t win and quietly back down, or will they fight to the end?

While Verizon, AT&T and T-Mobile may dig in their heels, this could prove an opportunity for Sprint to embrace the inevitable future as a market opportunity. Perhaps one of Sprint’s smartphones (for now limited to the Pre or a BlackBerry) will come bundled with a VoIP client if (iPhone-style) there’s a mandatory data plan.

Once the leader in shifting mobile phone pricing, Sprint was strangely the laggard when carriers finally offered (overpriced) unlimited use plans. Its current CEO, Dan Hesse, has severe financial pressures but also fewer ties to the old way of doing things than his three major US competitors.

This is one of the few chances Sprint has to control its own destiny. On the other hand — as I teach my strategy students — in a price war, everybody loses, it’s just that the low cost leader loses a lot less.