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How Skype Helps AT&T

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AT&T (NYSE: T  ) , well known for its network troubles, is about to get help from an unlikely source: Skype.

Executives at the rebel Internet telephony provider said in a blog post that Apple's (Nasdaq: AAPL  ) new software development kit (SDK), unveiled with the introduction of the iPad, removes restrictions for using voice-over-IP services such as Skype, iCall, Fring, and Gizmo5 on AT&T 3G networks.

This would be surprising, if not for a conversation I had with an AT&T spokesperson in the wake of recent pricing changes to its unlimited calling plan. The former Ma Bell joined Verizon (NYSE: VZ  ) in raising rates on data plans, even as it cut prices elsewhere.

Why cutting prices isn't as crazy as it sounds
"We recognize that the real growth in wireless is in data," the AT&T representative said. "So yes, we cut prices. We also added a whole new class of customers."

He may or may not have been referring to the iPad when we spoke weeks ago -- he didn't specify -- but the underlying message is the same: AT&T's voice business isn't as important as it once was.

It may even be a burden. Last year, in response to the FCC's call for comment about plans to move to an all-Internet phone network, AT&T described the public switched telephone network (PSTN) and plain-old telephone service (POTS) upon which Ma Bell was built as "relics of a bygone era."

Hello, master of the obvious
Good for AT&T for admitting what we've known for years. We've seen the numbers. The latest: Skype's network carried an estimated 54 billion minutes of international long-distance traffic in 2009, researcher TeleGeography reports.

"The volume of traffic routed via Skype is tremendous," TeleGeography analyst Stephan Beckert said in a press statement. "Skype is now the largest provider of cross border communications in the world, by far." [Emphasis added.]

Research like this explains why Sprint Nextel (NYSE: S  ) is so dependent on WiMAX provider Clearwire (Nasdaq: CLWR  ) . Fast delivery of broadband Internet is about more than serving smartphone apps; it could transform telephony. AT&T seems to know that, too. Earlier this year, the carrier committed to spend $18 billion to upgrade its network for carrying data traffic.

Improvements can't come fast enough. Apple's iPhone is already a portal to some 140,000 apps, and Research In Motion's (Nasdaq: RIMM  ) BlackBerry is getting hungrier by the day. Owners of the Tour, Bold, Curve, and Storm handsets can now stream Sirius XM Radio's (Nasdaq: SIRI  ) Webby feeds.

How do you spell relief? S-K-Y-P-E
Data streams like these add stress to telephony networks. AT&T's upgrade is bound to help its customers -- there's evidence that it already is -- but it's also an arms race; carriers spend to keep up, hoping all the while that consumptive consumers don't eat more than AT&T's servers and switches can chew.

Skype and its VoIP peers offer a second, and perhaps more attractive, option: off-loading. Move calls from the PSTN to the peer-to-peer Internet, where software routes and delivers calls directly. Customers get cheaper calls, while AT&T saves on capital expenditures.

Go back to the carrier's comments to the FCC. The PSTN is an albatross; every dollar spent on upgrading a network not designed for data -- or modern, IP-savvy telephony -- is a dollar wasted. In that sense, AT&T's bear hug of Skype is a message to the FCC: Drag your feet if you want, but we're moving forward with IP telephony, and moving past PSTN. Is anyone in Washington, D.C., listening?

Now it's your turn to weigh in. Will you opt for a rich data plan to use Skype on your 3G iPhone? Are you using IP telephony by another means? Or you do prefer the old PSTN for calls? Make your voice heard using the comments box below.

Apple is a Motley Fool Stock Advisor selection. Sprint Nextel is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers last used a rotary dial phone in the '80s. Tim is a member of the market-beating Rule Breakers stock picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy was as surprised as you by that onside kick.

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  • Report this Comment On February 10, 2010, at 3:02 AM, defridgerator wrote:

    Sounds great, until you start calling from a non 3g area. What happens when you're out in a remote part of the United States where there isn't a valid network (camping/hiking etc) and you can't do voip calling? Do they work in celltowers and route those calls to a network of sorts?

    For someone living in the city where there are hotspots all over the city, then this makes sense.

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