Kate Bulkley, Media Analyst.

Revolutionary calling

By Kate Bulkley

The Guardian

Thursday June 22, 2006

A Swedish firm is about to dramatically reduce the cost of international calls made from mobile phones

Hjalmar Winbladh, chief executive and co-founder, Skype.

International calls on mobiles have always cost users a small fortune and made big profits for the phone companies, but that may be about to change. Not only are excessive charges for international roaming under scrutiny by the EU, but a Swedish start-up called Rebtel - launching this month in three dozen countries around the world - has a scheme that slashes international mobile phone call charges to almost nothing.

"Skype for mobiles" is how the firm's chief executive and co-founder, Hjalmar Winbladh, 37, describes the service, which offers international mobile calling for a flat fee of only $1 (54p) per week. Vodafone's Passport Service, by comparison, charges 75p just to set up the call connection for each international call before charging your usual per-minute home tariff. The Rebtel scheme is a bit fiddly to set up initially, but the concept is staggeringly simple. Users register on the Rebtel website (www.rebtel.com) and list the international numbers of family and friends. Then Rebtel assigns local phone numbers to each of the favourites to cut out the international call charge element, thereby also eliminating any roaming fees.

A serial entrepreneur who set up Sendit, a mobile internet technology company he later sold to Microsoft, Winbladh and his partner Jonas Lindroth (who also worked with him at Sendit) will spend only a few million dollars to set up the company (there are seven employees) and buy the local calling numbers and routing capacity they need. Unlike mobile phone operators, which with marketing, sales staffs and handset subsidies can spend $300 to $600 acquiring each new mobile customer, Rebtel is betting on its website and viral marketing to keep subscriber acquisition costs very low. This gives the company a "good operating margin from day one", says Winbladh.

Rebtel sees its potential market as the estimated 25bn international calling minutes that there are per month. "It's a niche, but if that's a niche it's a pretty nice niche," says Winbladh. Rebtel is levering the fact that local call prices are falling as more and more operators offer cheap bundles or flat fees to keep their customers. This trend, married to cheaper connection technologies like "soft IP switching", makes the set-up and operating costs of Rebtel very low.

The new service goes right to the most lucrative heart of the mobile operators' business, because they typically charge big premiums on international calls. But it is not all clear sailing for Rebtel. The EU has already moved to force operators to cut roaming charges - the typically high rates that one operator must pay to use another's network, which are then passed on to the customer.

"Operators have to react because the pressure from the regulators is getting stronger on roaming and international call rates," says Jessica Sandin, head of the mobile practice at Fathom Partners, a UK strategic mobile consultancy. "As they react with lower tariffs, this could be a threat to this new company's potential business, but it's question of how quickly that will happen and also the convenience factor for users."

One UK mobile operator executive who spoke on condition of anonymity, said that the Rebtel model is a "workaround", and that it has only a "short-term window" because all the mobile operators "will get there" on offering lower tariffs. "We operators know that things like high roaming charges are among what we call 'toxic practices', and even though we make money from them we don't want to be seen as ripping people off, so it's a balancing act."

Winbladh thinks that Rebtel is a better solution for making cheap calls than Skype: "You don't need to talk to your computer screen, you don't need to buy a special headset to plug into your computer, and you don't need to download any software to your mobile phone," says Winbladh. "We think that people would rather talk into their mobile phone than into their computers."

Paolo Pescatore, an analyst at consultancy IDC, says that the Rebtel model makes "a lot of sense" but he worries that the initial sign-up process looks quite complicated. "I think this could be a stumbling block for non-technical users."

Skype, which was bought by eBay last year in a $2.6bn deal, is also developing its software for mobiles. VoIP technology looks set to disrupt the traditional telcos' voice-calling revenues on both fixed and mobile phones. It's only a question of how quickly the operators embrace the new technologies and economics themselves.

Six European mobile operators, including T-Mobile, Orange and Telecom Italia, have already agreed to slash from October the roaming rates they charge other operators for connections to their networks, and more and more are launching lower cost deals for international calls.

"When it's evolution, the big guys win; when it's revolution the entrepreneurs win," says Winbladh with a grin. He clearly sees VoIP married to local peer-to-peer calling as a revolution, and thinks the big mobile operators will have a hard time beating Rebtel's prices.

Letter published June 29, 2006

When in roam

Kate Bulkley (Revolutionary calling, June 22) has little understanding of mobile roaming, or of the Rebtel service. Roaming charges arise from taking a mobile outside the range of its own operator, thereby relying on a different company's network. Despite Bulkley's claims of Rebtel eliminating roaming fees, it has nothing to do with roaming but is concerned with international calls made from within, not without, the "home country".

John Walters, Bexhill

[Kate Bulkley writes: You can avoid roaming using Rebtel now if you get a local Sim card in the country you are roaming to. But it's true this isn't avoiding roaming per se; just becoming a "local" mobile user. Avoiding roaming charges using Rebtel will only work once Wi-Fi-enabled handsets become common - Rebtel's plan for next year.]


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