iSkoot promises carrier-friendly VOIP

Mobile operators can no longer avoid the free voice calling that comes with voice-on-the-Internet (VOIP) protocol. They might as well embrace it. And the start-up iSkoot says it has a version of mobile VOIP service that could even make wireless carriers some money.

Mark Jacobstein, CEO of iSkoot, told the audience at the eComm conference last week that mobile VOIP is here to stay. That topic will continue to be in the news this week at the Voice on the Net (VON) Spring VON.x 2008 show at the San Jose Convention Center this week.

“Operator-friendly VOIP is no longer an oxymoron, ” said Jacobstein.

When Apple launched the iPhone, AT&T certainly didn’t want anyone to make free phone calls over the Wi-Fi high-speed wireless Internet connection on the iPhone. VOIP would simply allow consumers to bypass its fee-based wireless calling network. It just results in lost minutes for the carrier, and the calls clog the thin data channels of the carriers, resulting in poor voice quality for the calls, Jacobstein said.

But iSkoot’s VOIP service with wireless calling “is peanut butter and chocolate,” he said. Basically, you load the iSkoot software onto any regular cell phone with a regular calling plan and a data service subscription.  It connects to ebay’s Skype calling service, the leading  VOIP service with  276 million  registered users.

Then you can get your Skype buddy lists and make calls to them that help you avoid long-distance fees. You can call other folks on cell phones or landlines using the SkypeOut service, which connects an Internet call to the traditional networks. You can also receive calls from Skype users.

You can cut the costs of paying a phone company for long-distance or international calls. But the calls are placed over the wireless carrier’s voice network to a local PC-to-PC calling service so the carrier still gets paid. Once signed in, you can see which buddies are available to receive a Skype call. You can click to talk to them or chat.

The call quality is clear because it travels over the more robust voice network, Jacobstein said. The call is routed to the company’s own gateway inside the wireless carrier’s switching center. It is then routed to the Internet from the carrier and then connects to eBay’s Skype service.

This business model is what attracted Jacobstein to become CEO of iSkoot in December. Last year, I figured he would wind up as CEO of a mobile games company. He was, after all, on a panel about games with me not long ago at Silicom Ventures and was a founder of mobile game maker Digital Chocolate with Trip Hawkins. But when I saw him last week at the eComm conference, he said he saw a much bigger opportunity in mobile voice over-Internet protocol (VOIP).

The service launched in its downloadable form for the 3/Hutch phone in December, 2006. In November, iSkoot got another boost in volume with the launch of the 3 Skypephone from the company that goes by the name “3.” That phone is available in eight countries now. Call volume is closing in on 100 million minutes, Jacobstein said.

As far as competitors go, most of the rivals sell their own special Skype hardware, such as Netgear or Philips. Consumers who pay for these phones not only have to dish out more money for the phones but also can only access the free Skype service when they are within range of Wi-Fi connections. That costs more and is less convenient that the iSkoot solution, Jacobstein says. The iSkoot software can be downloaded onto a wide variety of cell phones in more than 40 countries. About 30 million users registered for Skype in the fourth quarter of 2007.

iSkoot also competes with other mobile VOIP companies such as mig33, a Burlingame, Calif., company that also offers cheap mobile international calls as well as a variety of other services such as mobile e-mail and chat. mig33 recently closed a $15 million round led by DCM. The mig33 software is Java-based and requires a phone with GPRS mobile Internet access, but it does non-Skype VOIP voice calling.

Mei Lin Ng, co-founder and vice president of special projects at mig33, told me that her company has focused on a vaiety of services that go with VOIP, including instant messaging, mobile e-mail and social networking. The company uses a system where a user sends a request for a VOIP call to mig33, which then calls the user back on the cell phone voice line. In that sense, it can also be perceived as carrier friendly because it generates voice minutes, Ng said.

But Jeff Pulver, head of pulver.com and a pioneer in Internet voice applications, said that phone companies may be more likely to view VOIP as disruptive to their businesses.

“iSkoot is a disruptive player,” he said. “But I believe they can do more than arbitrage” between the high phone rates for overseas calls and the low costs of Skype calls. That is, Pulver said, companies like iSkoot can move on to delivering more innovative services that accompany VOIP technology in the future.

“iSkoot can be a wolf in sheep’s clothing for the carriers,” Pulver said.

The more direct competitors are EQO, Fring, and IM+. Each of those does Skype calls on mobile phones, but they use the cell phone’s data channel, not its voice channel. iSkoot is betting it will be viewed favorably by carriers and that consumers won’t go to the other Skype players.

iSkoot has raised $13 million in two rounds to date. Its investors include Charles River Ventures, the second venture round leader where Jacobstein recently served as an entrepreneur-in-residence; Khosla Ventures, which led the first round; ZG Ventures and Michael Jesselson, president of Jesselson Capital Corp. in New York. The company is based in Cambridge, Mass.

Jacobstein, who formerly ran Loopt, joined as CEO in December, taking over from founder Jacob Guedalia, who remains president, chief operating officer, and founder. iSkoot has partners including Sony Ericsson, Nokia, Blackberry, Palm, Qualcomm and Microsoft’s Windows Mobile division.