3 UK lowers barriers to Skype

http://www.ovum.comThis move is undoubtedly another part of 3 UK CEO Kevin Russell’s strategy to disrupt the status quo in the UK. He should be applauded for doing something that stands out from the crowd.

The UK mobile network operators’ antipathy to all forms of VoIP (even the less than technically pure form provided by 3) is well documented and is common around the world.

This is a customer acquisition play intended to attract Skype fans. Once on board the intention is to sell them ordinary phone calls, SMS and data. Indeed, Russell states that 3’s Skype users are less likely to churn, use 14% more voice minutes, contribute 10% more SMS revenues and use three times more data than their peers who don’t use Skype. This is a canny move to change 3’s prepaid Skype perception from one of forcing users to top up credit to one of encouraging them.

Too small a move to drastically affect the market

Nonetheless, 3 is caught in something of no-win situation in the UK. If this gambit succeeds, 3 will have disrupted the market, but only insofar as forcing the other operators to respond. As its competitors are far larger and have deeper pockets, the likelihood is that 3 will come off worse in the long term. And if it fails, 3 can only try even more desperate tactics to attract customers.

In addition, 3 is unashamedly targeting low-value customers with this offer, potentially limiting the incremental revenue opportunities. Skype users tend to be young with limited budgets. They may be the future of the mobile industry, but are not going to compete against the major players’ revenues in the short term.

Unlocked phones could have negative impact

From mid-2009 anyone with an unlocked, compatible handset will simply need to buy a £2 SIM card to receive the same terms. This is an extension of the above acquisition strategy and is another high-profile, disruptive move; however, we fear that there could be unfortunate ramifications for 3.

Russell made no secret of the fact that he doesn’t care how these phones will be unlocked and that the ‘market will decide’. This certainly won’t win him any friends among his rivals and may be counter-productive if they respond in kind. 3 has no intention of changing its SIM-locking strategy – hardly a truly ‘open’ approach.

3 also risks higher customer care costs as it must support a wider range of devices than it does today. The full range has not been revealed, and 3 was careful to ensure that it wouldn’t promise to support every phone, but the resulting breadth of devices on its network could prove a burden.

3 could also attract stolen phones to appear on the network. It is to be hoped that 3 will have more controls in place at launch than was implied at the launch today. Otherwise the infamous UK media could have a field day.

Steven Hartley, Senior Analyst, Mobile practice