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This has now been fixed.
When you search for someone to add to your directory, you then add them and a contact request is generated. This contact request states "Please accept me as a contact so we can call and instant message each other." If your contact does not accept this email, then you are unable to initiate a video call, but you can initate a voice call only.
Once they accept, the video becomes available. Simple as that. It is obviously a security feature and I am surprised that the techies at Skype have not been on here to explain the behaviour of their application.
Good luck and resend out those contacts and ask them to accept you.
Does the other party see their own video? I know this may seem obvious but if they're not sending video, you won't see any.
If they are sending video you shouldn't have to do anything special to see them.
You might try testing using Bill Campell's video test site listed at the top of this forum. If you can see the video feed from Bill's test site you'll know the problem is with the contact you can't see.
Does anyone have a resolution to this issue?
I have updated my iPad 2 OS to the latest (4.3.5), I downloaded the latest skype for iPad (1.0.1273) and I just tried the Bill test echo site (bill-on-skype-video-echo). I get the exact same behavior as the user who created this thread. Specifically, the contact can see my video, I can see myself on the iPad but not my contact. My contact can see both me and themselves. In addition, I also download skype for iPhone, connected to Bill's test echo site and received video. For some reason, skype for iPad doesn't work and surprised so many have seen success given very little you can do to screw up!
Any thoughts from the skype engineers?
For those that fall into this camp, I went a away for a few days, and tried it and I can now see video working on my iPad. I didn't change a single thing - in fact I didn't pick up my iPad in that timeframe - I'm guessing somewhere on the skype network (if that term is correct) the problem was resolved because it certainly wasn't my app that changed.