3UK shows Skype drives revenues, reduces churn

Lynnette LunaTwo reports out this month warn operators about the unstoppable mobile VoIP onslaught, and recommend operators stop combating the trend by creating partnerships with VoIP players. By doing so, operators can actually put themselves in a position to drive revenue and reduce churn, not just stop the bleeding.

Juniper Research released a report late last week that predicts 100 million mobile VoIP users in just two years, and suggests that alliances will be the best way to stave off competition. Meanwhile, Ovum called on operators to stop clinging desperately to their high-margin traditional voice service revenues and embrace VoIP. Implemented well, Ovum said mobile VoIP can attract new users, reduce churn and even encourage data plan purchases.

3UK, owned by Hutchison Whampoa, is the prime example. Lots of folks thought the operator was nuts in 2008 when it embarked on an open access model to not only embrace third-party providers for email and IM but also let Skype offer VoIP over its network. A year later, 3UK made it even easier to allow customers to use Skype by eliminating data charges and top-up fees for either contract or pay-as-you-go customers who use Skype on its network. Anyone with a 3UK handset and a SIM enabled for Skype can talk and IM as often as they want to other Skype users for free.

3UK's strategy has produced some shocking results. Mobile Skype users aren't just using the network as a free ride. They are revenue generators. According to a case study released late last year by research and consulting firm CCS Insight, 3UK reported that Skype users churn about 14 percent less than non users, VoIP users have a "margin uplift" of more than 20 percent, are more likely to subscribe to more data services than non-data users, and spend almost a third more on SMS than non-users.

Perhaps the most shocking statistic of all: Mobile Skype users generate almost 60 percent more voice revenue than non Skype users. What? Apparently Skype users are prodigious talkers. While Skype is a lot cheaper than traditional circuit-switched calls on 3UK's network, the sheer number of calls on VoIP (which runs on the operator's circuit-switched network) has increased voice revenue nevertheless.

"The tangible outcomes of the partnership challenge the common perception that Skype mobile solutions cannibalize voice revenue," CCS Insight said. "This is a reflection that Skype users are more active communicators, a finding supported by the August 2009 survey, which revealed that continuous Skype users on average consumed 17 percent more non-Skype voice minutes than those who didn't use Skype."

Of course, these statistics are also a result of 3UK's savvy marketing and market positioning--that it's the disruptive player in the market. It will be interesting to see if Verizon Wireless, which forged a partnership with Skype in March, will see similar results.

Verizon hasn't touted the service as aggressively as 3UK, but has ensured that Skype calling won't hurt its metrics anyway since subscribers must first buy a smartphone and higher-priced voice and data plans in order to use the Skype circuit-switched service for no extra charge. But if Skype users on Verizon's network turn out to be as active as 3UK users, Verizon has a winner on both fronts. And I suspect Skype would become a bigger marketing tool for Verizon.  

Still, there is one sticky point with mobile VoIP that operators may have to deal with soon--the surge of usage on WiFi networks. Since Verizon's Skype service uses its circuit-switched network, the service isn't available via WiFi. But Juniper Research predicts that a high percentage of mobile VoIP calls will travel over WiFi networks, thus bypassing operator networks altogether. Juniper believes this trend will result in $5 billion in lost revenues by 2015. --Lynnette