Skype & Verizon’s Fear of the iPhone

After complaining, cursing and trying to destroy Skype for the past few years, today the big daddy of the U.S. telecom industry, Verizon, decided to embrace the upstart. And it did so in good style — by hosting a heavily attended press event announcing their partnership at mobile industry’s biggest boondoggle, the Mobile World Congress in Barcelona. If you just simply scanned the headlines, you’d see an old-school telco finally getting the religion. But then you’d also miss the full story: The degree to which fear of the iPhone was behind this Verizon decision.

First let’s get the basics of the Skype-Verizon news announcement out of the way:

* Skype and Verizon have built a new client especially for use on Verizon Wireless’s smartphones.
* The client allows unlimited Skype-to-Skype voice calls without cutting into your Verizon minutes.
* You can use Skype Out calling rates for international calls also without cutting into your Verizon minute bundles.
* You can also use it to send and receive instant messages to other Skype users.
* As reported earlier, the service is available on 3G smartphones with data plans, including the BlackBerry Storm, Storm2, Curve, Curve2, 8830 World Edition and Tour smartphones, as well as DROID by Motorola, DROID ERIS by HTC and Motorola DEVOUR.

Now here are a few things they didn’t tell you:

* The Skype mobile client won’t work over any WiFi-enabled smartphones. And that includes DROID devices. To me, that’s bogus.
* You cannot use the Skype client to make any calls to U.S. PSTN numbers. Those calls are routed over Verizon’s network, and thus in the process help generate the company more money. In other words, a leopard doesn’t really change its spots.
* Despite the company’s boasting, there are a lot of places where Verizon’s 3G network doesn’t quite work, especially as you start moving away from urban areas. In the words of Dr. Gregory House (of “House”): Everybody lies. (Especially phone companies, if I may add.)

What I like about it:

As Skype CEO Josh Silverman said, with this new client, your Verizon phone address book becomes more useful and makes inbound Skype calls easier. It makes using Skype IM and Skype Status messages more useful. I especially like this because it gives Skype a new opportunity to grow its revenues and bump up its profits. “I think we have seen an attitude change amongst operators and they are open to forming more relationships,” said Silverman, noting that his company was talking to other operators as well.

Which bring me to the elephant in the room: Why exactly is Verizon singing the Skype song? The answer is simple: the iPhone.

During the press conference and later in a conversation with the Verizon executives, I asked why they suddenly embraced Skype. They gave me some PR-sanitized answers about smartphone penetration, demand from consumers and whatnot. The real answer is the iPhone.

Ever since the iPhone launched, Verizon has gone on the defensive. It’s seen AT&T with its frail little network gain and then retain market share. Today, despite all the problems with Ma Bell’s network, customers are still signing up for the iPhone. Verizon needed a countermove. It thought the BlackBerry Storm would be the answer, but that’s like fighting a bazooka attack with a peashooter. And the company controlled access to its devices and network like the former Soviet Union embraced perestroika, aka Android. I’m not sure if even that has had the desired effect.

Which brings us to the Skype deal. I’ve been reporting on Skype for some six years, during which not at a single day passed when I didn’t hear some kind of anti-Skype remark from an operator, Verizon included. There was a visceral hatred for the Internet calling service, which essentially started eating the insides of their business. And when you have so much hate for a particular entity, you just don’t get up an embrace it — unless you’re scared of something. In the case of Verizon, that something is the iPhone.

The two companies started talking about working on something together roughly a year ago. At that time, the iPhone mania was at its peak and it’s fair to say that Verizon was a little spooked. When I asked one of its executives about the iPhone, he denied that the talks were a direct response to the device. But he did acknowledge that the competitive landscape had changed and that customers were making decisions based on applications. Skype is one such application — one of the most powerful and popular applications available for the iPhone. The growing popularity of Skype — 300,000 downloads a day — is a good reason for Verizon to team up with the company. If it can convince even a handful of those downloaders to use it via Verizon, it’s preventing them from using another phone.

The final proof of the fear of the iPhone: Neither Skype nor Verizon would not respond to my question of whether this deal between the two companies was an exclusive one. In other words, when I asked Skype CEO Josh Silverman if another carrier, say, T-Mobile USA, said it wanted his company to build a Skype Mobile client just for its service, would he do it, his non-answer pretty much said: Verizon is using Skype to fight off competition. Not that there’s anything wrong with that.

Related content from GigaOM Pro (sub req’d):

AT&T, Verizon Grudgingly Move Toward Openness

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