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Internet-calling software provider Skype sees the mobile market as the next frontier for its service, but economic realities in the voice market--coupled with mobile operators who feel threatened by Skype--could put the kibosh on large-scale adoption for some time to come.

Skype, a peer-to-peer software application that allows people to make free phone calls to other Skype users over the Internet, has become an easy and inexpensive way for people all over the world to stay in touch.

In addition to allowing voice calling and instant messaging to other registered Skype users, the service offers premium services, such as Skypeout, which allows cheap calls from Skype to landlines or mobile phones worldwide. Another paid service, Skypeln, provides a personal and portable number that people can use to accept calls anywhere in the world.

Now the company is focusing its efforts on the mobile market.

"Our users aren't always at a computer," said Tony Saigh, business development manager for mobile at Skype. "But 96 percent of the time people have their cell phones within 1 meter of them, so it makes sense for us to extend our application to users on mobile devices. I think it also opens the market up for us to people who want the freedom of using Skype but don't want to be tied to a computer."

At the Consumer Electronics Show in Las Vegas this week, Skype made several mobile-service announcements, including one touting its plans to work with chipmaker Intel to put Skype software on Intel-powered mobile Internet devices, or MIDs, and on portable PC-like devices that use Intel's low-power processors. Skype also said that it will work with Sony to put its software on the PSP 2000 portable gaming device. Skype also announced its software will be embedded on the new version of Sony's Mylo personal communicator, the Mylo COM-2, which is a small, portable, PC-like handheld device. Skype software had already been available on the original Mylo personal communicator that was launched in 2006.

While these devices will all connect to the Internet via Wi-Fi or, eventually, the WiMax broadband wireless technology, Skype has also struck a deal with a major wireless carrier to embed its application on cell phones that will use the carrier's 3G cellular network. In October, the company announced the new Skype phone in collaboration with the U.K.-based mobile operator Hutchison 3 UK. The phone, which is being demonstrated at CES, is already available over 3's network in seven countries, including the U.K., Australia, Austria, Denmark, Ireland, Italy, Sweden, and soon Hong Kong.

There's no question Skype's downloadable software application has struck a chord with traditional broadband Internet users. The service, which was bought by eBay for $2.6 billion in 2005, has been viewed as a model of success for voice over Internet Protocol, or VoIP, services, with more than 246 million users worldwide as of September. Now the question is whether the application can become a hit in the mobile market.

"When you look at adoption of VoIP on the PC, it was all about cost avoidance," said Charles Golvin, an analyst with Forrester Research. "Skype offers some clear feature benefits, but I'm not sure that is going to be enough to entice people to download the service or even encourage carriers to partner with them."

The hurdles
On the one hand, mobile is the most natural extension for Skype's application, because phones are designed for voice communication whereas PCs are not. Skype says that its stripped-down, mobile version of its software, which has been available for Windows Mobile since 2004, has been downloaded more than 7 million times. But there are still several hurdles facing Skype that could keep its mobile application from reaching the same level of success Skype enjoys in the broadband world.

Some of the barriers are technical. For example, the 3G networks that are used to provide data services are not designed to carry voice. These networks offer far less bandwidth than wired broadband networks, which means data packets are often delayed on their way to their destination. This may not be a problem for data such as e-mail, but for voice this latency can make calls sound choppy. At this point, most experts agree that voice-call quality is far superior using the old circuit-switched voice networks rather than the 3G data network.