Value Chain Conflict is Inevitable, Also Resolvable

Eric Lagier, Skype director of business development, hardware and mobile, says the mobile phone industry isn't ready for Skype, in particular because the industry doesn't offer high-speed mobile access cheap enough. Users could make cheap phone calls cheap if broadband data plans were cheap, Lagier says.

That might be a bit like Steve Jobs complaining that the music rights holders take too big a cut of the sale of a song.

"We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says. Lagier pointed to wireless operator 3 as an example of what
Skype would like to see. 3 offers 3G bandwidth for about $9.69 per month, supporting unlimited Skype calling.

So what would Skype like? Low-cost, flat-fee wireless broadband packages that allow users to make unlimited long distance calls. "We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says.

Lagier's comments nicely illustrate the sorts of value chain disagreements that inevitably are going to occur as new IP-based business models are created throughout the communications and entertainment industries. Tussles are inevitable because every participant in the value chain wants to maximize its position and maintain high profit margins, even at the expense of other participants. That shouldn't surprise anybody.This goes on in every industry with a complex value chain.

To be sure, European mobile executives made very bad decisions when they bought their 3G licenses. Telco executives have operated in cozy businesses with little competition and little innovation. Everybody would like lower prices for mobile broadband. But it's a bit shocking to hear an argument that essentially is a
whine. "We could offer free or really low cost calling services if other participants would simply sacrifice both their calling and next-generation network revenues." Don't get me wrong. I use Skype. I like it. I use 3G and I like that too. Mobile calling prices are too high, especially in Europe, Middle East and African markets. I
don't believe in packet blocking, including blocking of Skype packets. I don't agree with regulations that outlaw use of Skype and similar applications.

But a value chain participant won't get very far in a business that requires a great deal of "playing nice" by essentially complaining that it can't make any money because another essential partner won't agree to commit business suicide voluntarily. To be sure, wireless carriers are going to have to lower prices as markets become more competitive. And reasonable prices for broadband can provide a foundation for lots of other services that will generate profits for carriers. Wireline telcos, for example, have concluded that unless they can hang on to the consumer broadband access account they will have a tough time hanging onto voice or video accounts.

We'd agree with Lagier that the mobile industry isn't very Skype friendly. We think it should be more friendly to all sorts of innovations third parties could bring it. It just isn't helpful when one part of the value chain asks another to destroy itself so another part can prosper. Everybody has to prosper.