Interview: Frank Meehan, GM and Director of Handsets, 3

Hutchison/3 is among the major mobile carriers in the world, with their service areas spanning many countries including the UK, Hong Kong, Australia, Indonesia, Austria, and many more. At the Mobilize ’08 conference, I interviewed Frank Meehan, GM and Director of Handsets with 3.

Last year, 3 became the first mobile network operator to embrace Skype, the immensely popular PC-based Voice over IP platform. In doing so, 3 gave customers the ability to call and IM Skype contacts around the world for free as along as they kept credit active on their 3Skypephone. This was a revolutionary move that we mobile junkies in the US would love to have.

JH: What went in to building a Skype phone on 3?

FM:Every carrier (besides us) relies upon big voice and SMS revenues. For us, Hutchinson, every decision is made upon a financial viewpoint. The first breakthrough for the Skype phone was that we found Skype to be a powerful and disruptive technology, but we couldn’t handle the heavy packet load it would put upon our system. Then we came across iSkoot. Which, at the time, was a small company who figured out how to use Skype system and take a Skype call and transfer it over a circuit. With this development, Skype calls become very clear, in fact, we have customers who say calls are clearer on the handset than on a computer.

To make Skype a fantastic offering for our customers, we engaged Skype and after a long time, got them to work into getting the Skype functionality deep into the handset. We wanted Skype to be integrated into the contact list. So we engaged Qualcomm and the BREW platform and told them what we were thinking. 3 wanted the Skypephone to be an entry-level device, not some expensive smart phone that wouldn’t attract a wide array of customers.

We designed the UI, API’s and the software in the system. Finally, we engaged a contract manufaturer in China and the 3 Skypephone was a reality.

So, using the Skype calls and adding presence by using the data channel, we have a unique offering for our customers.

Many telcos fear making this kind of move because it will cannibalize their international calling revenue. But, most of this market has gone to calling cards anyways, even here in the US. So, we decided to give people the opportunity to talk cheaply on the Skype network. In fact, at 3, we have not seen any significant drop in international calling revenue (since the introduction of the Skypephone).

JH: What caused 3 to look to offer a Skypephone in the first place?

FM: In the European mobile market, most customers are pre-paid. And with pre-paid customers, we see a high rate of churn. Every operator is subject to people swapping SIMs all the time. Most EU mobile customers carry around multiple SIMs in order to call their mates cheaply, depending on what mobile carrier their friends happen to be on.

With 65% of the UK market being pre-paid, we had to figure out a way to keep our pre-paid customers around. In our market only 15% of prepaid customers remain on your network after 6 months. So this is why we built the Skype platform.

JH:What does the Skypephone service cost?

FM: For prepaid – all a customer has to do is maintain 10 pounds of credit on a pre-paid basis and you get unlimited Skype calling and IM for free. For contract customers, they get unlimited Skype calling and IM.

This way, if someone gets a Skypephone and they decide to swap out the SIM, you lose your Skype contacts, Skype calling, and the entire value proposition. Also, those who buy the Skypephone also buy corresponding data plans and give us another revenue opportunity.

For the UK mobile network operators, getting people to pay and utilize the data networks we’ve paid capital to build is in their best interest. Every day that goes by that customers don’t use the oodles and oodles of data capability we’ve built is a lost opportunity.

We don’t do SkypeOut at the moment. We’re thinking about it, but hey, we’re a mobile operator and we need to make revenue also. But as it is, you can call Sydney for free if your mate is on Skype already.

JH: How has Skypephone adoption been so far in other markets besides the UK?

FM: Italy has been good as well as Australia. Hong Kong has been just okay. The best Skypephone sales occur when the Skype adoption is already strong in that particular market.

JH: What is wrong with the U.S. mobile market, from your perspective?

FM:There’s nothing wrong with the U.S. market, but the US is miles and miles behind the rest of the world, especially when comparing the U.S. market to Asia.

However, in the US, it’s weird what has happened regarding Wi-Fi. In the UK and Europe, where we have a wide 3G footprint, we have seen a wide adoption of 3G dongles and customers are using these with their laptops and smart phones to access the mobile web instead of Wi-Fi.

In the United States, whenever a municipality has tried to roll out a wide ranging Wi-Fi network, the networks have ultimately failed. In fact, UK and EU carriers are paring down their offerings of mobile handsets that have Wi-Fi built in because these handsets don’t sell.

I can see that US carriers should work harder to try to keep their customers around.

JH: Any chance of getting a 3 Skypephone here in the US?

FM: No, 3 and Hutchison have no plans to bring the Skypephone here. However, if a U.S. carrier wanted to take a look at the phone and license it or work something out, we’d be open to that.

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