BARCELONA (Dow Jones) -- A new brand of phones is emerging with the potential to disrupt the business model of traditional mobile operators.
At the 3GSM mobile trade show in Barcelona this week, a technology that allows handsets to operate both over the regular cellular network and over the Internet captured the attention of participants.
The promise to customers is of lower bills, as calls made within range of a wireless hotspot are routed over the Internet and cost less. Enterprise users are also embracing the technology as many have voice-over IP infrastructure and Wi-Fi networks already in place.
The proposition, however, is slightly less appealing to operators, who worry they may lose precious voice minutes. Still, they can't afford to resist the technology entirely because of its appeal to their highest-revenue enterprise customers. In addition, the technology will allow them to offload some traffic and improve their indoor coverage.
Some say, however, that the biggest threat to the business model of operators like Vodafone Group or Sprint-Nextel, isn't the multi-mode phone described above but the Wi-Fi only phone.
"The real threat to the traditional mobile carriers is the emergence of Wi-Fi handsets. The cost of building such a phone is nothing in comparison to a cellular handset," said Marty Singer, Chief Executive of PCTEL , a company that specializes in wireless broadband mobility.
Singer believes the technology has huge potential in emerging markets, where the cost of handsets is the main barrier to entry.
Sounds like a remote promise?
Wi-Fi phones are already a reality, with the likes of UTStarcom, Cisco Systems and U.S. Robotics manufacturing them.
Neil Mawston, an analyst with Strategy Analytics, however, believes the threat presented by these new phones is exaggerated.
Strategy Analytics predicts wireless LAN - the technology that enables calls over the Internet-- will be in about 12% of handsets by 2010 in comparison to 1% this year.
"There's potential for these phones to steal some mobile minutes in the home. But it's a portable rather than a mobile device really, because W-LAN coverage remains tiny, at about 1%," he said.
Mawston believes the Wi-Fi phones have potential for hot spot areas but said that for the mass market, "it's not really a viable proposition."
In addition, there are call quality issues. Wi-Fi was not designed for voice traffic. As a consequence Wi-Fi calls can be disrupted if the flow of voice information is inconsistent.
"It's a trade-off of cost versus quality and coverage. To me, that's a proposition too focused on the short term," he said.
Carriers are also eager to talk down the threat posed by both converged and Wi-Fi only devices.
Vodafone on Tuesday said it doesn't believe voice-over-Internet is coming to mobile phones for the next two to three years.
"We don't see Voice-over-IP coming to mass market mobile for at least two to three years. We don't think it would be a compelling proposition today," said Alan Harper, Vodafone's group strategy director.
(END) Dow Jones Newswires "
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