T-Mobile's Triple Threat

Olga Kharif
27 Jun 2007
00:00

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.

Goodbye Landlines‾

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.

Retention

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.

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