When the FCC declared voice over IP exempt from the public utility regulations of individual U.S. states late last year, the decision not only buoyed the future of upstart VoIP providers like Vonage but also ignited speculation that mobile operators would seize upon the technology as a complement to their cellular networks. With regulatory constraints minimized and tax burdens lowered, the reasoning goes, wireless carriers could inexpensively deliver voice calls over public and private Wi-Fi networks alike, bolstering service bundles while offloading voice traffic away from bandwidth-starved 3G networks.

It's a brilliant plan on paper, but still some distance from reality. For starters, only one commercially available device — HP's iPAQ PocketPC h6315 PDA — offers U.S. consumers true cellular/802.11b Wi-Fi convergence. Beyond that lies a web of logistical and technological questions, among them handoffs, billing and roaming. There are also concerns regarding Wi-Fi's parasitic effects on handset power consumption, not to mention the dilemma facing carriers hoping to reconcile the uneasy marriage of licensed premium hot spot networks with unlicensed, free access.

But make no mistake: Wi-Fi, and by extension VoIP, is coming to cellular networks, possibly even this year. The Yankee Group estimates that one-third of all wireless calls are currently within range of some kind of Wi-Fi service, and as Wi-Fi networks continue to expand, the opportunity for carriers grows more and more lucrative.

Service providers across the telecommunications spectrum are already intensifying their Wi-Fi efforts. At the time of this writing, T-Mobile — arguably the most Wi-Fi-centric of the national wireless carriers — claimed 5290 U.S. hot spots on its Web site, about a thousand fewer than wireless ISP Wayport, the largest hot spot operator in the U.S. In October 2004, SBC (co-owner with BellSouth of Cingular Wireless, the country's largest wireless provider) announced that it would slash the cost of unlimited access to its FreedomLink Wi-Fi network to just $1.99 per month. And at the Consumer Electronics Show in early January, Vonage and networking solutions developer UTStarcom announced the F-1000, a portable Wi-Fi handset configured with Vonage's VoIP service to offer users mobility across 802.11b networks.

“I absolutely see a very strong sense of commitment from handset providers and operators to start enabling a future where there are multiple ways to stay connected,” said Frank Hanzlik, managing director of the Wi-Fi Alliance, a nonprofit international association formed to certify interoperability of wireless LAN products based on 802.11 specifications. “Two or three years ago, there was a lot of controversy about Wi-Fi versus 3G, and the industry seems to have gotten past that. The real challenge now is integrating the technology into the devices and having the seamless ability to vibrate between environments. End users don't want to have to worry about what kind of network that they're on. They just want to stay connected.”

As Hanzlik points out, it wasn't so long ago that carriers wanted nothing to do with Wi-Fi at all. But things change.

“Wi-Fi is becoming a must-have item in many mobile products — well over 70% of notebooks shipped worldwide now have Wi-Fi capability inside,” Hanzlik said. “If you're in a coffee shop or a park, and you have Wi-Fi capability inside your device, you can get connected in a very fast way at a very affordable cost structure, and you want that experience everywhere. Carriers are starting to recognize that.”

Certainly, ubiquity constitutes a large part of Wi-Fi's growing carrier appeal. According to research firm Gartner, the number of public hot spots in the U.S. doubled to 130,000 in 2004 alone, while Pyramid Research estimates that nearly 6000 hotels worldwide now provide Wi-Fi access, a figure expected to top 25,000 by 2007. But Wi-Fi also represents a low-cost alternative to traditional network expansion: With spectrum so scarce — and, on those rare occasions when it does become available, so expensive — Wi-Fi and its free unlicensed spectrum are an increasingly attractive option to traditional network buildouts.

“Carriers were spending billions of dollars on spectrum, but with Wi-Fi, you can start complementing 3G or 2.5G networks at a fraction of the cost and do so very quickly,” Hanzlik said.

But even free spectrum comes with a price tag. Anyone contemplating cellular/Wi-Fi convergence must grapple with a crazy quilt of ad hoc public networks that, thanks to roaming, forces carriers to relinquish control of both subscribers and call quality.

“[Unlicensed spectrum] is nice, but it comes with a trade-off,” said Kris Rinne, Cingular Wireless chief technical officer. “You have a limited ability to assure performance, where in the case of licensed spectrum, we're able to optimize how we utilize that spectrum in order to provide end-user quality. You may or may not get that depending on who is the owner of the 802 network and how they manage the quality of service.”

While Cingular has proven far less aggressive in building out a Wi-Fi network than rivals like T-Mobile, the company is nevertheless uniquely positioned to capitalize on cellular/Wi-Fi convergence: Over the past year, parent company SBC has announced a series of deployments and roaming agreements with players both inside and outside of the wireless community. In addition to a roaming pact with Sprint enabling their respective subscribers to access Wi-Fi hot spots owned by both carriers, SBC and provider partner Wayport inked deals to extend the FreedomLink network into thousands of McDonald's restaurants and UPS retail stores countrywide.

In an interview with Reuters last year, SBC Chief Technology Officer Chris Rice said the company is actively investigating cellular/Wi-Fi convergence: “If I don't [embrace Wi-Fi], Cingular's got to have a lot of spectrum,” he said. Rice added that Cingular subscribers would be able to place VoIP calls everywhere SBC maintains a Wi-Fi access point.

Cingular is already in the early stages of convergence, Rinne said.

“We have provided integrated PCMCIA cards that would provide both EDGE capabilities and Wi-Fi capabilities to leverage hot spot capabilities, and we are working toward combined clients that will make it easier for the customer to access and utilize Wi-Fi services,” she said. “That's not only beneficial from a hot spot standpoint, but many enterprises have their own Wi-Fi networks on campus, so it allows the customer to utilize a single device on their campus as well as remotely over our EDGE networks.”

But even as carriers like Cingular set the wheels of cellular/Wi-Fi convergence in motion, there are a number of loose ends, chief among them how carriers can monetize these new services while still stimulating usage — and how they propose to bill for them in the first place.

Although most U.S. carriers now bill subscribers at a single monthly rate, roaming across Wi-Fi networks throws a wrench in the works. While seamless handoffs could result in pricing that fluctuates in mid-call, there's also the question of whether Wi-Fi-enabled calls will be applied to standard per-minute charges. On top of that, carriers hoping that converged services will reduce churn and operating costs must be mindful to keep their voice-over-Wi-Fi services as cheap as possible. According to the Yankee Group, the average per-minute cost of a wireless call is now roughly half of what it was just four years ago, and in the minds of many mobile users, Wi-Fi is a free technology. Put cellular and Wi-Fi together, and consumers will no doubt expect they will be able to pay that monthly bill with the change stuck between the cushions of their couch.

But Rinne thinks both the promise and the threat of free Wi-Fi are overestimated.

“If the customer so chooses, they have the opportunity to utilize that free 802 network or utilize our EDGE network and the ubiquity we provide — it all boils down to usability,” she said. “Yes, you can use these services for free if you want to spend a lot of time searching the network and figuring out what you can authenticate. But is it really free if you spent 45 minutes of your time trying to find a network? No, because your time is worth something, versus making it easier to utilize and access the network when you need it and where you need it.”

Hanzlik agrees. “We're seeing that there's room for free and fee-based models — as long as the price is reasonable, people will gladly pay for a reliable connection in a variety of locations,” he said. “As long as the value proposition is there, and the price is reasonable, there is room for both models to co-exist.”

Of course, before consumers can begin subscribing to converged services, there must be a fair number of available devices that operate over converged networks (see chart on page 28). Hanzlik said that by this time next year, he expects all the major handset manufacturers will have Wi-Fi Alliance-certified converged products on the market, a prediction that dovetails nicely with Rinne's assertion that the first cellular/Wi-Fi services will roll out by year's end.

“I think you'll see some introductions in 2005, and it's going to be one of those things that evolves and gets better and better over time,” Rinne said.

Even if converged networks don't make their debut in the next year, their time is not far away.

“Wi-Fi to some extent has a reputation as a little bit of the Wild West — it's a disruptive technology that's really changed the rules on a lot of traditional ways of thinking,” Hanzlik said. “Now voice over IP is starting to transcend wired applications and move into VoIP over Wi-Fi, and that's going to shake things up relative to people's expectations for VoIP and being able to use that in various hot spot locations. Wi-Fi isn't going away, voice over IP isn't going away, and we're going to see more and more announcements of carriers and upstarts embracing this. It really is the future.”

Cellular Convergence Products Receiving Wi-Fi Alliance Interoperability Certification

Company: Motorola

Product: MPx

Certification Date: Aug. 27, 2004

Certified for the following standards:

• IEEE Standard: 802.11b
• Security: WPA-Personal WPA-Enterprise

Company: Samsung Electronics

Product: Samsung i730/S#H-i73#

Certification Date: Jan. 7, 2005

Certified for the following standards:

• IEEE Standard: 802.11b
• Security: WPA-Personal WPA-Enterprise

Company: Nokia

Product: Nokia 9500 Communicator

Certification Date: Sept. 23, 2004

Certified for the following standards:

• IEEE Standard: 802.11b
• Security: WPA-Personal WPA-Enterprise

Source: Wi-Fi Alliance