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VoIP Over WiFi WILL Disrupt the Cellular Industry

It’s official.  You can read all about it in The New York Times today.

“What if, instead of burning up minutes on your cellphone plan, you could make free or cheap calls over the wireless networks that allow Internet access in many coffee shops, airports and homes?” asks Matt Richtel.

The Times has recently discovered what you probably already knew, The next generation of cell phones have WiFi access built into them.  Although there are some nasty non-technical details to be worked out, these phones can go online via a hotspot as easily as they connect to a cell tower.

But, here’s the rub for the cellular industry: when these phones log on in a hotspot, they can become VoIP phones as in free or very cheap calling, as in Skype.  Telco have invested their typical borrowed billions in wireless frequency auctions and in so-called 3G services.  These investments were made on the premise that wireless prices for voice and some services would stay astronomically high compared to landline and Internet connections.  Whoops.  You can hear the write-offs and bankruptcies coming!

I don’t usually give investment advice and I should never be believed in the short-term because I get notoriously ahead of the markets (called poor timing).  Nevertheless, I am avoiding investing in any company whose income growth depends on traditional wireless – even sold some mutual funds which were too heavily invested in the sector.  This includes most major telcos – many of which are now being touted by analysts again.

My guess if that the complete disruption of this industry will take five years (see note above on market timing).  This disruption may require that mobile phones support some varieties of WiMax as well as WiFi for nearly universal coverage.

Here’s a bunch of specific predictions:

  • WiFi support in mobile phones will wipe out the distinction between the mobile phone and the home phone (about time!).  When you are in your house, your phone will be logged into your home WiFi and become your home phone.
  • WiFi support in mobile phones will shift the balance of power from the big wireless operators to the cellphone hardware and software makers. Phones will be purchased independently of calling plans just as computers are purchased independent of Internet connectivity arrangements.  Coupons for access may be included with phones instead of phones being included with calling plans.  Why? Because voice calling will be too cheap to meter and hardware will still cost something.
  • The about-to-happen incredible growth of the WiFi mesh will benefit from the savings in cellular costs it enables; and the incredible growth in WiFi availability will hasten the day when traditional expensive cellular connections (an the price paid for them) are obsolete. A true virtuous circle.
  • Existing cellular infrastructure will be used as LOW-COST wireless access to the Internet (EVDO does this today at a fairly high price). This is exactly analogous to the use of today’s legacy copper network to carry DSL over which VoIP functions. Problem for the owners of this infrastructure (at least owners of the frequencies and radios – towers will be good) is that the rates they’ll be able to charge in competition with WiFi and WiMax won’t pay the interest on the debt incurred to build those networks. So bankruptcies will be required to lower the cost basis of these assets and make them affordable.

Telco history is particularly repetitious.  Here’s another excerpt from the NYTimes article:

“A spokesman for Verizon Wireless, Jeff Nelson, said the company was looking at Wi-Fi service but had no plans to offer a product in this area. ‘At this point, we don’t see a great application for customers,’ he said.”

The Times also says that carriers think use of public WiFi spectrum will degrade quality so consumers won’t want that.

You may remember that these are the same reasons telcos ignored VoIP ten years ago.  And why AT&T sold all rights to it mobile technology a generation before that. Their consultants told them no one would use a service with the poor quality and the insecurity of radio as opposed to the (illusory) security of wireline.

The telcos are afflicted with the incumbent’s dilemma:  they could embrace the new technology and hasten the death of their traditional wireless cash cow. They might survive better that way.  But they’ll be worse off next quarter and the quarter after that. And might have to write-off the assets currently on their books if they recognize the disruption.

That’s why upstarts who enable the disruption won’t have to worry about marketplace competition from the incumbents early on. Regulatory “competition”, of course, is another story.

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» Open Infrastructure: Part 2 from isabel says
I read some eye-opening stuff this weekend. 1. Have you ever heard of CoralCDN? I hadn't. But Digg, SlashDot and Fark.com use it to serve links. And about 300 other sites have Coralized their software, image, and audio/video downloads. Coral [Read More]

Comments

Internet phone service

Already VoIP is threatening the ordinary landline phones. Now as it is becoming more and more mobile phone friendly, it is definitely becoming a threat for the mobile phone service. In future, critics say that it will replace all other phone services.

James Morgan - Puritan Financial Advisor

This includes most major telcos – many of which are now being touted by analysts again.

Jason Grilli - Striking Out the VOIP Competition

I totally agree and cannot wait to experience the big WiMax take over! As much as I am biased to Verizon, my cell service still has troubles in spots. My Verizon network seemingly stops at the front door of my house, and I live near Disney!

I am now involved in the VOIP industry, because I pay very close attention to wealth trends. I don't want to miss out on what has been called the #1 Industry by Inc 500 magazine. Like many others, I am positioning myself to capitalize on the best to be involved with in this decade. Here is the article: http://bit.ly/nextdecade

We have seen Apple trying to capitalize on the trend also. Skype and new international companies like Fring are free choices but not the best if you want clear service.
http://www.youtube.com/watch?v=bUaFaKApPX4

Check out my Youtube video and please comment to let me know how it compares to all else that you have seen out there. http://bit.ly/PPMGvideospot1

Looking forward to WiMax to become universal and rid of cell towers completely! Paying $30 a month for unlimited local, long distance, and international calls with the option for video calling would be a welcomed addition in this struggling economy.

Can't wait to tweet out this article!

Jason Grilli
Perfect Pitch Marketing Group
"Striking the VOIP Competition!"

Verizon Wireless

Written a full four years ago. Quite the foresight...lol.

voip phone

Shenzhen Fanvil Electronics Co., Ltd. is a well-known developer and manufacturer of communication products, including series VOIP phone, gateway and fixed wireless terminals. owning property right of the core technology of all products with strong R&D and manufacture base, Fanvil provides customers with one-up products base on advanced technology, clear audio, rich function, high quality, good service and competitive price.
Fanvil will continuously design new products according to the changing market and provide perfect service to customers around the world.

skibare

Wow Tom, you have STRUCK a NUKE deep into the Motherland of Cellular Dominance an the Cell Providers might be wanting to knock you off.........but, YOU SPEAK the truth and the Truth shall set you free!!! NICE WORK, I blogged your article because YOUR article supports my two component makers of cell phones in OVTI and RFMD........both profitable an both LEADING their industries in bringing forth the nex gen of CellPhones with Video Cameras and WiMax!
Skibare

Kingsley

Tom, perhaps you'll recall the story I told you about the relative cost of WiFi and 3G. For 1/10th the money that the PCS providers paid for the licenses alone for digital cellular, the entire US could be paved in WiFi. The cost density of WiFi is a fraction of that for 3G.

I have a wifi+SIP handset and it works great. I had to set it up myself, but it has the ability to auto-configure.

Embedded assets of telcos? That hasn't stopped us before, has it?

Keep up the good work Tom!

MikeB

This would be great if it was so easy. Isn't there one fundamental point that is missed here?

For ones cellphone to work over VoIP at a wifi hotspot needs carrier infrastructure i.e. a voip / tdm gateway.

The pricing for access for outgoing and incoming calls is up to the carrier. Rational economic direction for carriers such as TMobile is to make it a 'bit cheaper'... but not that much cheaper. So where is the revolution when carriers take this approach?

(If you are referring to bypassing carriers completely, I am sure one day we will see generic SIP clients on phones, but it is still a time off before most phones can support these applications, and they are useful and practical on phones. e.g. An app you have to start each time you visit a wireless hotspot isn't that practical. How about address book integration etc.)

Tim Schneider

Ajit is right to point out Wimax, especially with Intel and Motorola funding it. Motorola, like many equipment makers, is increasingly frustrated by the limitations imposed by the carriers, Wimax-enabled VOIP would be great.

How great would some decent unlicensed spectrum be? #1 enemy, wireless carriers . . . it would be devastating to them if Wifi moved out of junk spectrum.

manofsteel

Heh... have you actually tried WIFI access on your phone? I bet the cell companies are not far off the mark when they say consumers will not want to hassle with the technology.

This technology is like oil, there are certain price points where we are happy with what we have. If cell prices were to drop just a little, I would be happy with paying my cell phone bill rather than deal with Wifi access.

Ajit Jaokar

fantastic article! Shall blog about it. Quite thorough in the sense you have addressed the issues(subsidization of handsets for example). shall blog about it. also have a look at something similar I blogged about as well

Telecoms Operator 2.0: Can we set up an alternative mobile network using Wi-Fi and/or Wimax?

http://opengardensblog.futuretext.com/archives/2006/07/telecom_operato.html

My only caveat is: you have missed WiMAX

Rajesh Raut

Don't write off the cellular companies yet. They still have assets that will be hard to replicate: their brand, the ubiquitous stores, a customer service infrastructure and most importantly, control of the FCC.

This administration is adamant on being able to listen to all phone conversations. VOIP is harder to tap into because it blends in with other data traffic. And encrypting the VOIP packets would make it very difficult (but not absolutely impossible) for the FBI/CIA/NSA to hear the conversation as it occurs. Once you ban VOIP, only criminals will have VOIP.

VOIP over wireline is a struggle of the cable companies against the phone companies. With VOIP over WIFI, virtually all the lobbyists are arrayed on the side of the cellular carriers. When it becomes a danger to the carriers, expect legislation.

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