Nordic start-ups follow Skype with low-cost calls

HELSINKI Thu Jun 7, 2012 1:11pm EDT

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HELSINKI (Reuters) - Europe's traditional phone companies, already under pressure from cheap internet-based services like Skype, are about to face more competition from a group of Nordic start-ups that will offer low-cost mobile calls and other services.

These newcomers are following in the footsteps of Skype, also founded in Scandinavia, which has already had a big impact on the $628 billion global telephony market.

Skype, bought by Microsoft for $8.5 billion, now controls 25 percent of volume in international telephony, showing the level of demand for cheaper long-distance calls.

The growth of Skype's mostly free and internet-based calling service has eaten into the profits traditional phone providers make from long-distance calls, even though they provide the infrastructure that connects them.

The Nordic start-ups aim to capitalize on the demand for cheaper calls, with some focusing on low-cost alternatives to roaming and international calls in particular.

"Due to Skype's Scandinavian background there has been in the region a lot of focus on services that can help callers to save money," said John Strand, founder of Copenhagen-based telecoms consultancy Strand Consult.

Finnish-based Alekstra plans to launch a global service in 2014 focusing on corporate clients, while Danish group Interfone has just launched an international calling service.

Sweden's Rebtel has already signed up 17 million users for its calling app.

Rebtel's Chief Executive Andreas Bernstrom said companies like his could be a friend as well as a foe for telecom operators as they create additional traffic on some operators' networks, although their consumer businesses often lose clients.

Rebtel combines internet calls with traditional calling and offers free calls between Rebtel users, but charges for calls outside its network. It is already profitable and is aiming for $85 million in revenue this year.

"Operators are in a state of transition where their old cash cows of messaging and voice are drying up," Bernstrom said.

TeliaSonera, the Nordic region's biggest traditional phone carrier, plans to charge consumers extra fees to use internet calling apps on their phones. It remains to be seen if customers will put up with them and also if the charges will upset regulators.

The Netherlands last year banned telecoms providers from charging extra for internet services such as Skype or WhatsApp, a free mobile texting service, after Dutch carrier KPN tried to charge customers more for using them.

KPN reported a sharp fall in its first quarter profits in its home market this year due largely to smartphone users increasingly turning to free forms of communication such as Facebook, Twitter and instant messaging.

Others such as Telefonica and France Telecom aren't fighting the technology change but are adjusting their tariffs and offers instead to charge for mobile data and not voice, so as to reduce the incentives for using free messaging apps.

Telefonica is even developing its own Skype clone, dubbed "Tu Me", that launched for the iPhone in May.

ROAMING FEES

While Rebtel has focused on consumer clients, Alekstra is betting on corporate customers, offering them software to find billing errors - which can run to hundreds of thousands of euros - as well as savings opportunities from current phone bills.

Alekstra plans to step up its challenge to traditional operators in 2014 by launching a mobile virtual network business, offering services without roaming fees in key markets.

Before its launch, it aims to raise some tens of millions of euros from venture capital firms.

As a virtual operator, it will rent airtime from existing networks, but the investment needed is a fraction of what global incumbents like Vodafone or Telefonica have invested in building out networks from scratch.

Jani Puroranta, head of Alekstra's Finnish operations, said existing clients should help to jump-start the business.

"To start operator-business you need a quick ramp. Direct sales to existing customers can get us close to breakeven," Puroranta said.

Denmark's Interfone is using a chip-related invention to build its new phone business. Interfone's chip can be placed on any operator's SIM-card and is activated when consumers make international calls or travel abroad.

Interfone says its technology offers consumers 20-97 percent in savings, with cost cuts larger in most of northern Europe and soon in much of Asia, where the firm has its own gateways to route its traffic.

Chief Executive Jorn Kanst Husted said the firm - which is owned by founders, management and some local investors - would seek further capital to expand the business.

"Based on the overwhelming market interest, it is very likely that further funding will be required," Husted told Reuters.

(Additional reporting by Leila Abboud in Paris. Editing by Jane Merriman)

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