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How Hutch called Skype's bluff

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Analysis Business-wise, Skype is a basketcase. But that's just one of the things that makes it one of the most emblematic companies of our time - a real, Ur-Web 2.0 company.

Like so many internet companies, Skype has millions and millions of users. Like these internet companies, too, it can't make very much money off all these users. Hello, Facebook! And like these internet pin-ups, it owes a great deal to utopian power fantasies.

But what makes Skype so very of its time is the peculiar relationship it has with incumbent telecomms companies.

Think of Skype as a kind of parasitic virus that threatens to bring the host to its knees - but which can't survive without a living host. Bloggers and mainstream newspapers are another good example.

How so?

Well, Skype has no network of its own - it's simply an open protocol (SIP is more than one protocol, but bear with me) wrapped up in some proprietary bits. Apart from a few authentication servers, its only real asset is its "brand" - which isn't the most concrete or tangible line item to have on your balance sheet.

So at bottom, Skype needs somebody's else's network on which to operate. And because Skype has next to no income, and because its users can melt away as rapidly as they joined, it has no chance of attracting the capital investment needed to build a real network of its own, either.

(This is a problem for the entire VoIP sector - how do you attract capital when the price of the product itself is tending to zero? Only a fool would possibly see this as a good investment. Fortunately for Skype, it found its fool in the shape of Meg Whitman of eBay, who was dazzled by the Swedes' "front loaded" [translation: fictional] business plan).

All this means is that Skype is a kind of freestyle MVNO (Mobile Virtual Network Operator) - only without any contractual commitments, and utterly dependent on the generosity of hosts to permit it to operate. This isn't a problem when the access network is a commoditised and unrestricted internet connection - such as the home or the office network. But it's a huge problem when the user is out and about - because there's no ready host for the parasite to attach itself to.

So today Hutchison Wampoa, which owns the 3 networks, called Skype's bluff.

Hutchison has been pushing VoIP to the trapdoor for a while now. It recently killed the alternative "host" for the Skype-organism, by blowing away the business model for public Wi-Fi. 3 UK's excellent high-speed HSDPA network blankets much of the country - and you can access it from a laptop with a monthly tariff that's about the same as the price of an hour's Wi-Fi. If you're already a 3 subscriber, the network will throw in a USB dongle for free. If you need mobile data, you'd be bonkers to sign up to a Wi-Fi plan.

RIP, public Wi-Fi.

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