T-Mobile's Triple Threat
In the TV commercial for T-Mobile's long-awaited HotSpot @Home service, a wireless morph of cellular and Wi-Fi, a 20-something named Jimmy patters around the house in a bathrobe, soaking in the adoration of his friends: Sure, he was unpopular at school, but all that's changed now that he has converted his home into a Wi-Fi hotspot—and signed up for @Home, launched nationwide on June 27. It's a play for just the youthful audience T-Mobile USA (DT) needs to worry about with the arrival of Apple's (AAPL) iPhone slated to come just two days later through AT&T.
The new T-Mobile service, based on a technology called UMA, can pass a mobile-phone call from a cellular network to a Wi-Fi wireless Internet router at home or a public hotspot, or vice versa, without interruption to the conversation. And in T-Mobile's case, whenever a call is connected via Wi-Fi, it won't eat up monthly plan minutes. Hopeful that some customers may wonder whether they even need regular local phone service, T-Mobile is offering unlimited minutes for calls over Wi-Fi with the $20 monthly fee for @Home (or $10 under an introductory offer). In fact, a call started over a hotspot but continued via cellular will remain free as well.
To use @Home at home, however, the service requires a high-speed Internet connection from another provider, such as DSL or cable broadband, as well as a Wi-Fi router and one of two new mobile phones. The service, which can also connect with free public hotspots such as T-Mobile's roughly 8,000 locations, is being launched with one handset from Samsung and one from Nokia (NOK), both priced at $49.99 with a two-year contract. T-Mobile hopes to gradually make all of its devices @Home-compatible. T-Mobile is offering a UMA-enabled Wi-Fi router free with a mail-in rebate.
Here's how UMA technology works: When a user dials or answers a call via a Wi-Fi router, but then walks outside and the signal grows weak, the phone automatically detects and passes the connection to T-Mobile's cellular network if it's within range. The handoff is designed to be so seamless the user doesn't know it's happening.
The @Home service—which promotes T-Mobile as the only phone service you'll ever need—could further erode the traditional wired phone business. Various estimates suggest that between 27% and 41% of cellular minutes are used during calls from inside the home. And some 19% of U.S. households with Internet service have cut the cord, relying on their cell phones exclusively, according to consultancy Parks Associates. If it proves popular, @Home could speed that conversion, inflicting more damage on the local phone businesses at Verizon (VZ) and AT&T (T). In the first quarter, AT&T lost 285,000 residential consumer lines, up from 251,000 lines lost in the same period a year ago. "It's really about displacing the landline," says Joe Sims, vice-president of new businesses at T-Mobile USA.
The @Home service, initially targeted at young adults between 18 and 26 years of age, also may pose a threat to voice-over-Internet-protocol services like Vonage (VG), SunRocket, and Packet8 (EGHT), also favored by that demographic. After all, compared with many VoIP services, @Home may be cheaper. SunRocket, one of the least expensive VoIP services, costs as little as $9.95 a month, but Vonage and others charge more than $20. VoIP companies downplay the threat.
"[Most] people want to have a home phone that's separate from their cell phone," says Rob Chandhok, chief product officer for SunRocket. He argues that cell-phone numbers are viewed as more personal, and people are less willing to give them out.
The @Home offering also may aid T-Mobile in competing with smaller cell carriers such as Leap Wireless (LEAP) and MetroPCS Communications (PCS), which offer unlimited calling for as little as $30 a month. During its six-month trial in Seattle, the company found that @Home users tended to sign up for lower-priced calling plans, which at T-Mobile start at $39.99 a month for 1,000 cell minutes. Yet, says Sims, those users were more satisfied with the service and less likely to switch carriers.
With wireless carriers increasingly forced to lure one another's customers to grow, user retention is key. T-Mobile says it has found that poor in-building cellular coverage was the No. 1 reason its customers switched to rivals, so the company hopes the indoor strength of Wi-Fi will ease such complaints.
Also, by offloading call traffic onto the Internet, T-Mobile will free up space on its cellular network for other advanced services, such as video downloads.
For other carriers, the benefits of offering a converged cellular-Wi-Fi service are less clear. Such a service might cannibalize the landline business at AT&T and Verizon, whereas T-Mobile and Sprint Nextel (S) don't have a landline business to worry about. Sprint says it is looking at "femtocells" to improve indoor reception. A femtocell is, essentially, a mini-cellular transmitter that connects to a broadband Internet connection. Sprint declined to provide any details or the possible timing of such a service. At AT&T, "We are constantly exploring new technologies in our labs, but don't have details to share at this time," says spokesperson Fletcher Cook.
Even if they're so inclined, other carriers may have trouble following T-Mobile's lead. Rivals are six to eight months away from being able to offer an @Home lookalike, says Shiv Bakhshi, director in charge of mobility research at consultancy IDC (IDC). After all, it took T-Mobile three years to develop the service, which necessitated a network upgrade and tweaks to the Wi-Fi router to improve battery life on the phones.
"I think [this offering] will do well," says Bakhshi. "The pricing is very good."