Three keeps throwing down the challenges

“Are you going to get ahead of the curve or are you going to hunker down and protect what you’ve got?”

This was the rhettorical question asked by Kevin Russell, CEO of Three UK, during the launch of the company’s Skype phone. They may not have been in the room at the time, but the target audience was very clear: Three is continuing to challenge rival operators in all its local markets with a willingness to adopt new and radically different business models. Its competitors should take note – Three is becoming a powerful catalyst for change.

The company is capitalising on its position as a new entrant in each market and the willingness of Hutchison Whompoa, its parent organisation, to invest in a long-term game plan. Hutchison has racked up huge capital expenditures around the world to build one of the most modern and high capacity mobile networks available. With far fewer existing customers than most of its competitors, it has limited exposure to the risk of cannibalising its current revenue streams. This is enabling the company to treat the traditional revenue generators of the mobile industry – voice minutes and text messages – as almost zero value commodities.

Particularly in the UK, which is one of the world’s most competitive mobile markets, Three is showing no sign of slowing down the process of competitive attrition which has seen the price of basic communications tumble and the size of voice and text bundles balloon. The company is totally direct about this: at the launch event today I overhead a Three executive explaining to an analyst that mobile voice was over-priced and they see it as their job to help bring it down.

The Skype phone is part of this process. It is not a particularly ground breaking piece of technology, nor is it wholly new (Skype and Three have been working together to enable users of its X-Series products to connect to SKype for some time). However, by focusing on the entirety of the customer experience, Three and Skype have come up with quite a significant innovation for customers: free calling to any Skype user, anywhere in the world through an interface that’s as simple as making ‘normal’ calls. This is combined with a good looking handset, available free on contract or for £49.99 on pre-pay.

The service also adds some interesting additional functionality. Firstly, it is presence-enabled, so users can see the status of all their Skype contacts at a glance (i.e. are they available to talk, are they away from their desk or would they prefer to receive a text message). Also, it is set-up to support instant messaging, providing a free replacement for texting.

The bottom line for customers is that they can now have all the voice and messaging they could ever imagine using for £12 per month on contract or a combined total of £49.99 for the handset and a minimum £10 top-up each month on pre-pay. (In reality Three’s fair usage policy equates to about 4000 minutes of voice and 10,000 instant messages.) To achieve this users will not have to sacrifice any of the mobile functionality or ubiquity of coverage they are accustomed to – they’ll just have to ensure most of their contacts are also on Skype.

The way in which Three has implemented Skype is illustrative of their approach to product deployment. It uses a combination of the voice network and data communication to achieve the overall customer experience. The sign-on process, instant messaging and status updates are all sent as data. Voice calls, however, are routed over the existing voice network via a gateway server. Whenever you make a Skype call, you’re basically placing a standard voice call to a server box somewhere in Three’s network, which is then patching that through to the other Skype user.

There’s been no attempt to get evangelical about the idea of sending voice calls wholly over the IP network or an insistence that the most disruptive way to do this is over Wi-Fi rather than cellular. Three and Skype have simply looked at what customers want and found a way to achieve this.

It was clearly a complex project from an operational point of view, but this complexity is well hidden from the consumer. It involved an considerable expansion of the Three UI team, working with a contract handset manufacturer in China, partnering with Qualcomm for the software platform and developing an edgy marketing campaign that will focus on identifying key consumer influences rather than broadcast slots. The result is a polished consumer product that is very much ready for mainstream usage.

I was particularly impressed with the handset. Manufactured by the Chinese ODM Amoi, it is a 3G device, with a comfortable monobloc form factor and a weight of 86 grams. It is equipped with a 2 megapixel camera, web browser, Bluetooth, 256 Mb MicroSD card, 3D gaming and a 220 x 176 screen. Three Italia has been working with Amoi for some time to develop handsets branded in partnership with an Italian scooter manufacturer for that market. This particular product has a great UI and a logical interaction flow – it is easy to imagine consumers enjoying using it even without the unique selling point of the Skype functionality.

The applications platform is Qualcomm’s BREW and it includes BREW’s integrated application shop. This enables Three to sell additional applications to users from within the BREW environment and also push over-the-air updates to the Skype application. It is worth noting that this is a significant development for Qualcomm, which has struggled to gain any traction for BREW in Europe. Rumour has it QUalcomm dedicated significant resources and financial backing to make this happen.

The Skype service itself is accessed from a dedicated hardware button in the middle of the main joypad. This is a big part of the way in which Three and Skype have tried to simplify the experience. With their existing X-Series collaboration, users had to navigate to the application folder, find the Skype icon and launch it separately. With the new Skype phone, users can choose to be signed in automatically, so as soon as they turn on the handset, they are logged in to Skype and voice calls and instant message chats pop-up as they’re received.

The main interface is the standard Skype list of contacts, with presence icons to indicate their status. The mobile application can also be used to sign-up for a new account, add new friends, initiate chats and control your presence status.

Most importantly, it runs seamlessly in the background and there is virtually no latency when switching in and out of the application. I can’t stress how important this is. So many new innovations on mobile devices fail because they’re just flaky. They suffer from delays, memory shortages, crashes and long latency times. The new Skype phone has none of these characteristics and is a great example of integrated product design.

It is, however, a first step. Both Kevin Russell, CEO of Three UK, and Michael van Swaaij, acting CEO of Skype, acknowledge there are some shortcomings. There is no ability to call non-Skype users through Skype-out (where users buy Skype minutes to use on low cost voice calls outside the Skype user base) or Skype-in (where users have a dedicated Skype phone number that can be called from a standard phone line). There is also a question mark over how the service will be made available to existing Three customers.

Leaving these caveats aside though, Three and Skype have come together to make a courageous statement about listening to customer needs, challenging the status quo in the mobile business and recognising that delivering a great customer experience means getting it right across hardware, software, service, pricing and marketing strategy.

That’s as refreshing for the average mobile customer as it is alarming for the traditionalists who’d rather ‘hunker down’ and hope they can weather the storm.

We’d like to know what you think about the partnership between Skype and Three, particularly in these areas:

– What percentage of global voice minutes will be routed through Skype by 2010?

– Which market segment is this product most likely to appeal to – business customers, students, foreign workers or another group altogether?

– Will the absence of features such as Skype Out and video calling limit adoption by existing Skype users who are accustomed to having these facilities?

Please post your comments to the blog below…

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  1. 2

    Good piece. I have a handset and have been playing with it. The quality is not as good as you claim. Sadly the Skype-2-Skype communication is clearly no where as good as going over a normal line. Infact its notably less than going from PC-2-PC. Users will find this very disappointing.

    The lack of SkypeIn is a pain and i hope they get that sorted. SkypeOut i understand would cause certain billing issues between Skype and Three; so i am happy to leave that one out of the equation.

    But for a minimum of £10 per month, it is actually an expensive Skype solution. So to say the calls are free; isn’t really the case. Its just a clever “footnote”.

  2. 3

    Re: Absence of SkypeOut/In

    Yes – totally. Before I found out it wasn’t included, I was almost on my way to the nearest Three store. Enabled, it would have made the device truely revolutionary – offering incredible value for international calls particularly.

    I’d have thought Three could have arranged a revenue sharing agreement for Skype-minutes so that they didn’t totally lose out on call revenue.

    Really hope this can be included in a later update…

  3. 4
    Marek Pawlowski

    Thanks for your comments. Re: Alan’s point about call quality, I’ve not found this to be a problem in my trials. However, the Three implementation does introduce an additional ‘leg’ into the journey made by Skype calls by sending it first as a voice call, then transmitting it from the voice gateway and out over the internet as IP. With traditional PC-to-PC Skype calls, the connection is IP all the way. As a result, the calling quality of the Three Skypephone is potentially at risk from the coverage issues which affect traditional mobile voice calls. Simply put, if you’re in an area of poor network coverage, call quality will suffer.

    Re: Chris’ observation on Skype Out, this has been a consistent theme with existing Skype users when they first hear about the product. At the event, Skype and Three said they are working on this and they believe it will be technically possible in H1 next year. In theory they can use the BREW delivery system to send an OTA update to handset which will upgrade the software with this capability. However, there was no definite commitment to a timetable or even a guarantee that it would be released eventually.

    The issue is a complex one: does Three want to get into the business of revenue sharing with Skype on voice minutes which are being sold at much lower cost than its standard charges? In this scenario, Three is basically saying it will rent a network connection to anyone for about £10 a month and give them unlimited international calling at Skype Out rates in return for an unspecified share of the revenue. Does that sort of deal make sense for Three?

    Possibly…if there is a neglible cost to Three for connecting the calls into the Skype system and it can attract customers who wouldn’t otherwise be making those kind of calls, then maybe it is better to have them as paying customers on the Three network at just £10 per month than to not have them at all. There is also the potential to sell them additional services, like the games Three is already offering through the BREW application shop embedded in the handset.

    It comes back to my point in the original article: Three is unique in having no major legacy business to cannabilise. Most other mobile operators would run a mile at the suggestion that they should set themselves up as a storefront for selling minutes on Skype’s network, but Three is able to take a different view. It has recognised that most mobile customers aren’t going to use their phone to make international calls at the current rates – it is simply too expensive. However, if they can get the cost structure right in the Skype partnership, then it becomes a compelling marketing tool for lowering subscriber acquisition costs and growing the customer base, even if users are paying Skype Out rates for calls rather than the traditional mobile premiums.

  4. 5

    The user experience of the phone certainly isn’t as good as you claimed.

    At a glance, sure it has a dedicated button to launch Skype, and it’s a good thing in general, however, look closely at the interaction flow, they have overlooked some important inconsistant issues:

    1. Try chatting. On the Contact List, which you access it by down button, it is labelled as Send Message, not only users are required to translate “Send Message” to possibility to send chat, it is inconsistent to Skype Contacts, which you accessed it by Skype button, where users will select a person and choose “Start chat”, or something like this.

    2. Launch chat from Contact list, and abandoning the chat by hitting back, it takes users back to Skype Contacts instead. And users are left wondering why did it look different than when I saw before, because both contacts are presented differently. Skype Contacts are a list of contacts you have available as your PC client, but Contact List on the skype phone is basically the phone contacts with addition of your existing Skype contacts and presence enabled. I found myself wondering why sometimes the list looked one way, and another time looked another way, it took me a while to understand there are technically 2 contact lists there.

    Another off-putting experience is that Skype online status icon will change to “connecting” whenever data connection is made, no matter whether users need to know about it. You send a chat message, it starts changing to gray and spinning (suggesting to users it is connecting). If users are being charged for data connection, it’s important to use this to indicate usage, but in Skype phone, what user needs is to be assured s/he is always on, it’s more likely users get an impression that the network is unstable with such implementation of icons.

    This problem affects many important use case for people who will use skype features: One example is that when you receive a chat message, and you want to open it, only to find out the icon is spinning with a “new chat” message icon next to it. The main problem I suspect is many users won’t immediately find out their new chat message, and put off by the connecting status icon, that’s certainly not the experience neither Skype or 3 will want. I am quite surprised that the simple notification with softkey implementation to allow users to go directly from home screen to the new chat is lacking.

    Adding with the inconsistency issue, some users might end up going to the contact list because they saw presence icon and mistook it was where Skype was. Or they remember using the Skype button to launch skype, but fail to notice using the right button to find chat.

    Very good experience?? Not!!

  5. 7

    i think I second Alan where skype is concerned: in my opinion( and I readily admit that I’ve only used the phone briefly)skype-2-skype does not give great sound quality.And in its present state I would not consider making long calls. I don’t know about anyone else, but when I make a call I don’t want to be reminded of the distance between me and the other person.

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