BARCELONA (Reuters) - This year's rollout of mid-priced cell phones that can make calls both over conventional mobile networks and over the Internet, using Wi-Fi wireless connections, will be good news for callers who want lower mobile phone bills.
It could be bad news, however, for mobile phone companies, which will lose revenue if people do more of their calling over inexpensive Internet broadband networks -- which they can do at home or at the office with Wi-Fi.
This year, all major handset vendors will start selling these dual-mode "cell-fi" mobile phones, including new models announced at this week's 3GSM conference, the world's biggest wireless communications trade show.
Research group Gartner and others estimate that about 20 different cell phone models will be available in 2006 that can connect to Wi-Fi, with about 20 million units expected to be sold this year alone.
The majority of those will be shipped by top cell phone maker Nokia, mostly as part of its range of enterprise phones.
Sony Ericsson, Motorola, Palm, Blackberry maker Research In Motion, UTStarcom and others will also bring out new models.
Almost half of the North American enterprises surveyed by market research group Forrester were interested in dual-mode Wi-Fi/cellular phones, hoping for lower costs.
ROLLOUT FOR CONSUMERS
The pioneers of wireless phone calls over the Internet -- U.S. enterprises such as Cisco Systems Inc. -- have had their entire corporate campuses covered by Wi-Fi wireless Internet networks for years.
They were also among the first to embrace Internet-based calling, known as Voice over Internet Protocol (VoIP).
"For them it was a natural evolution to take VoIP wireless," said Frank Hanzlik, managing director of the Wi-Fi Alliance.
The concept is now being introduced to consumers, with lower call prices as the carrot.
BT Group in Britain introduced its Fusion service in June 2005, using Bluetooth as a short-range wireless technology but built on the same concept of switching a call to the cheaper broadband Internet connection when possible.
In the United States, Samsung Electronics Co. has received an order for cell-fi phones from a major telecoms carrier, although it has not disclosed the name of the company.
"The uniqueness here is that it is a medium-priced phone," said Ton van Kampen at Philips Semiconductors, which supplies chips for the devices.
He noted that Wi-Fi capability has so far been restricted to the most expensive smartphones.
Wistron from Taiwan has also announced a medium-priced cell-fi phone, based on the Linux operating system, for a second-quarter launch.
THREAT TO REVENUE
If medium-priced feature phones come with Wi-Fi, the potential global market widens to 250 million phones a year.
Industry research groups forecast that Internet calling will dramatically affect revenues for operators.
Forrester has estimated that a customer switching to Internet calls would cut average revenue per user (ARPU) in half, to $25 for unlimited packages from $50.
In the United States alone, this would result in a revenue decline of $240 million per year for every 1 million consumers who shift to VoIP.
This explains why carriers are reluctant to offer VoIP unless they face aggressive competition, for instance from cable TV firms, or when they are the challenger in a market themselves.
Mobile carriers too may face a difficult time, according to British research group Analysys.
Under one potential scenario, in which fixed-line carriers expand their broadband services and the mobile phone network would only be used when subscribers are away from their home or office, ARPU in Europe would remain stable around 27 euros per month for the next six years.
Despite flat prices, however, operators would have to offer 30 percent more minutes of voice calling, plus data services such as video and Internet.
This explains why Vodafone, the world's largest mobile carrier, balks at putting cell-fi phones in its line-up of subsidized handsets.
OPERATORS WORRIED
But BT Group, France Telecom, Deutsche Telekom and other integrated carriers, with both fixed-line and wireless networks, see cell-fi as a potential way of boosting customer loyalty.
For those operators, VoIP brings cost savings that would let them dramatically cut prices of voice calls from the home, and thus stem the rising tide of "cord cutters" -- the 15 percent of consumers who have already ditched their fixed phone lines.
"Users are less likely to switch when it means replacing a functioning home network," said Forrester analyst Charles Golvin.
Things may, of course, play out differently, but only if mobile carriers aggressively cut prices and marginalize the cost savings consumers can achieve by switching to cell-fi phones.
Mobile operators in India and China have shown it is possible to run a profitable business charging as little as a few euro cents per minute per voice call, even though most of their costs are in the network, where they would enjoy little cost advantage over European operators. The lowest tariffs in Europe, however, are around 0.15 euros.
Mobile operators have a few more years to make this happen, before cell-fi phones overcome poor voice quality and other problems typical of any new technology.
"Why bother with VoIP if the quality isn't good? In particular when cellular voice calls, with all the bucket plans that are available, are becoming so cheap?," said Gartner analyst Ben Wood.
"I just don't see it happening."
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