Skype teams up with operator KDDI in Japan

Skype, the less discussed internet service with more than 500 million users, has surprised a number of telecom watchers by teaming up with Japan’s third largest operator KDDI to offer Skype calling to its subscribers through smartphones.

At first glance this looks like turkeys calling for Christmas, and the WSJ’s Japan Real Time blog explains exactly why a telecom operator would partner with a company offering free calls over the internet (using voice over IP, VoIP) rather than promoting calls through its own network. The issue is the drop in phones calls in Japan and KDDI’s suffering at the hands of (not having) the iPhone.

And it’s clear that KDDI is desperately in need of a shot in the arm. The company’s au mobile phone service has been losing subscribers to rival Softbank Corp., which sells Apple Inc.’s iPhone and iPad in Japan.

Even KDDI itself acknowledges that it has lagged rivals, especially in the rapidly growing market for smartphones. “Many of the subscribers we lost in recent months were switching to the iPhone,” says a KDDI spokesman.

The benefit for Skype is obvious but how does the partnership benefit KDDI?

For one thing, Japanese people are no longer making many calls on mobile handsets.

To offset lower voice traffic, carriers are seeking ways to boost revenue from data traffic. If Skype can get people to buy smartphones and sign up for expensive data service plans, that could more than compensate for dwindling revenue from traditional phonecalls.

But with Skype freely available to an iPhone, with calls made possible through data, KDDI’s exclusive offering can be replicated by Softbank users, to a point:

KDDI cites better sound quality and more stable connection, saying it will let subscribers make Skype calls on the company’s mobile phone network rather than a 3G Internet connection. It has also developed special software to keep the Skype application running on low battery power, so users can always be ready to receive Skype calls.

KDDI has not yet decided the pricing details for the Skype service, but says domestic Skype calls will likely be free. The company is counting on Skype to help motivate its subscribers to replace their older handsets with new smartphones and prevent them from leaving to rival carriers.

How will it get on?

But it’s unclear how well the Skype feature will be received in Japan. Compared with the U.S., Skype’s presence and brand recognition in Japan is not as prominent.

KDDI’s new smartphone lineup and its tie-up with Skype could make it more competitive, says Tokai Tokyo Research Center analyst Yusuke Tsunoda. “This won’t necessarily help KDDI expand, but it should at least help it stop bleeding.”

Skype has done this type of deal before but not on this kind of scale. Back in 2007 it launched Skypephone with the UK’s fourth largest operator 3, however the partnership had little bearing on the UK market and did not, specifically, do all that much for 3.

Meanwhile Reuters has details of the roll-out and devices:

All of KDDI’s new smartphones will be based on Google Inc’s Android platform.

The flagship model “IS03” is made by Sharp Corp and offers an electric payment function and other features that are found on traditional mobile phones in Japan. It will hit store shelves in late November.

The phone will also come with a Skype application, which will allow users to make unlimited Skype-to-Skype voice calls without being charged against their monthly minute allowance or data plan except when initiating calls.

KDDI plans to broaden the Skype service to more devices in 2011.

The move is low-risk, at least, and it doesn’t appear that KDDI is betting the house on this move, and rightly so. The introduction of Android is perhaps more interesting as, with smartphone functionality levelling out for some functions, Android offers a new, potential threat to Apple in providing a similar, albeit reduced experience on a far more reasonable budget.

It will be interesting to see how the devices are received, given Android was tipped to be growing in Japan earlier this year.