VOIP à la (Dual) Mode

Dual-mode cellular/WiFi wireless VOIP services are now being launched by a wide variety of carriers all over the world, including pure-play wireless service providers, wireline carriers, and providers of integrated fixed and mobile services. The key to this value proposition is a dual-mode phone that operates both as a conventional cellular handset on the road and as a WiFi device at home, in the enterprise, and in some cases at public WiFi hotspots.

Carriers have lots of reasons to get into the dual-mode service business, as I detail in Heavy Reading's latest report, "Wireless VOIP & the Future of Carrier Voice Services." Although the current crop of dual-mode services offer some compelling hooks for users, in most cases there's still something left out of the total value proposition.

One problem is with the handsets themselves. Carriers using the Unlicensed Mobile Access (UMA) standard (such as BT Group plc (NYSE: BT; London: BTA), T-Mobile US Inc. , and Orange SA (London/Paris: OGE)) are relatively well served by available handsets – they currently have three high-caliber, mid-tier GSM handsets to choose from (made by Nokia Corp. (NYSE: NOK), Motorola Inc. (NYSE: MOT), and Samsung Corp. ), with more due in the first quarter of next year.

But dual-mode service providers (often pure-play wireline carriers) that are developing services using non-UMA architectures are less well served at the moment, because major handset vendors are still focusing their WiFi integration efforts on UMA and on high-end devices. As a result, some carriers have turned to Asian original design manufacturers (ODMs) to hit an acceptable price point for a mass-market, voice-oriented dual-mode phone. They've more or less succeeded in doing it – but at the expense of the look and feel and features that make a "must have" device that flies of the shelves at retail outlets. Most of these voice-oriented phones developed by ODMs are lacking in design quality. Some don't even support basic features such as GPRS and MMS.

Not all of dual-mode's challenges are hardware-related. As the report shows, carriers need to do a better job pricing their services. Some aspects of dual-mode service tariffing are quite compelling for users. For example, Orange's Unik service offers unlimited calls in WiFi mode to landline and mobile numbers in France for €22 per month, with no minimum contract. Orange's main dual-mode rival, Neuf Cegetel Group (Euronext: NEUF), is offering free international calls to several European countries in WiFi mode from public hotspots as part of its tariff bundle.

But while many dual-mode services are being marketed as a "one phone" play – promoting the dual-mode handset as the only phone a user needs at home, at work, or on the move – none of the services really live up to that on the pricing side. The reason is simple: When you receive an incoming call in WiFi mode in your home, carriers such as BT, Orange and Neuf Cegetel continue to bill the caller at cellular rates. As long as enough people object to their friends and family being billed cellular rates for the privilege of speaking to them in their home, this will continue to discourage people from using dual-mode as a true "one phone" service.

Handover is another feature that's lacking in many of the new service launches. Again, the UMA-based carriers have an initial advantage where this is concerned, supporting two-way handover between cellular and WiFi. But non-UMA services typically lack handover, which means a call initiated from a WiFi network may drop altogether when the user wanders out of WiFi range.

It's debatable just how much of a showstopper the lack of a handover between modes really is. Carriers such as Neuf Cegetel and Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY) are going ahead without providing any handover at all. What is clear is that users would clearly prefer the handover feature to be supported. BT's experience with its Fusion service, based initially on Bluetooth, is that its customers clearly think of their dual-mode handset as a cellular phone rather than a cordless phone (in part because BT's UMA phones look a lot more like a cellular phone than a cordless). And because U.K. consumers don't expect their mobile phone to drop a call when they go in or out of their front door, they take the view that their dual-mode handset shouldn't either.

Making phone calls from public WiFi hotspots can appeal well beyond the geek community. Neuf Cegetel's offer of free international calls from hotspots in France is compelling. So is the prospect of being able to use WiFi mode from other public hotspots when roaming internationally, which Neuf Cegetel and new entrants, such as Norway's Hello AS , are promising. Even though the tariff regime for high GSM roaming charges is starting to come under significant pressure now, there's still plenty of excess margin for carriers to target here. Moreover, carriers in Japan, Korea, and North America will be able to leverage dual-mode CDMA/WiFi terminals to offer their customers cheap international calls from European and other Asian hotspots.

There are a number of very substantial technical and commercial challenges to be overcome as carriers strive to deliver compelling dual-mode wireless VOIP services. Besides challenges relating to handset choice and intercarrier settlement, substantial upgrades are required to both enterprise and public WiFi infrastructures if they are to support mobile voice services as well as cellular networks do.

"Not bad, but could do better," would be a reasonable verdict on the dual-mode value propositions that have launched so far. There are many more carrier launches in the pipeline, and over time many will indeed do better.

— Patrick Donegan, Senior Analyst, Heavy Reading

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