Total Pageviews

Sunday, January 27, 2013

Mixing, Matching and Charging Less for a Phone Plan

Mixing, Matching and Charging Less for a Phone Plan

AN Android smartphone with unlimited calls, unlimited texting, unlimited data and no contract, all for $19 a month Really

When I first saw this offer from Republic Wireless, I rubbed my eyes and looked for an asterisk leading to fine print that detailed a huge catch. But Republic, a division of a telecom company called Bandwidth.com, delivers exactly what it advertises. It can do so because the handset technology is a curious hybrid: it uses Wi-Fi when the customer is in a Wi-Fi area and Sprint Nextel’s 3G network when it is not.

The concept brings together the best of two worlds: the low cost of voice calls carried over the Internet and the convenience of making calls to any phone number using a major carrier’s cellular network when Wi-Fi isn’t available.

In my own case, on a typical day, I use my mobile phone mostly when I’m not actually mobile: I’m either at home or at work, perfectly positioned to use Wi-Fi at both locations. And I don’t even use the phone as a phone all that much. I use it mainly for e-mail and texts, neither of which requires enough bandwidth to benefit from the power of the fastest data networks.

If you walk into a Verizon Wireless store and buy an iPhone 5, you’ll pay $60 or more a month for an unlimited talk and texting plan, depending on the data allocation for Internet use that you select to go with it. Some of that monthly charge goes toward repaying the carrier for the discounted price that makes a $649 iPhone seem as if it costs only $200. But most of the charge is for gaining access to the carrier’s wireless network.

“We were looking at a mobile industry that had begun to charge extraordinary amounts of money, and we saw an industry opportunity that everybody else was missing: Wi-Fi is the new mobile,” says David Morken, co-founder and chief executive of Bandwidth, based in Raleigh, N.C.

Smartphone apps that offer voice calls using data plans, not minutes allocated for calls, are plentiful. Just last month, Facebook quietly added an option that lets users of the iPhone version of Facebook Messenger place free voice calls to other Messenger users. But using those apps to make a call means the recipient has to run the same app, an irksome requirement that never comes up when using phones alone.

Republic buys access to Sprint’s network on a wholesale basis for calls made outside of Wi-Fi areas. Its business model assumes, however, that Wi-Fi carries the load a majority of the time its phones are used. The company says that its service, even at $19 a month, is a profitable operation on a per-customer basis.

“We don’t have to force people, or even ask people, how to behave,” Mr. Morken says. “Over 60 percent of the time that the phone is being used, on average, our users are using Wi-Fi and that number is only going up.”

Last month, I tested a Republic handset, a Motorola Defy XT. It’s a light smartphone with a small screen, acceptable sound quality and great battery life.

Republic’s Web site gently warns against acting like a “data hog” and encourages its customers to “play nice and try to use Wi-Fi as much as you can.” But scolding isn’t needed: Wi-Fi is faster than 3G, so users have an incentive to opt for Wi-Fi wherever it is available.

The Motorola handset is the only one now offered by Republic, and it costs $259. The phone runs an older version of Android, and it has some first-generation glitches, like losing a connection when a caller starts out on a Wi-Fi network and then leaves the coverage area. (With a click, the call is resumed using Sprint’s cellular network.)

Today most Wi-Fi access requires a logon. But that shouldn’t prove a great inconvenience: you can simply set up the phone once with Wi-Fi at home, then once more at the office. At other locations, users can ignore Wi-Fi availability and use 3G instead.

Mr. Morken says a solution to the Wi-Fi-to-cellular handoff problem has been worked out in the company’s lab, and should be available midyear. Later this year, he also expects to offer more handset models, including one at the high end; he says they will run the latest version of Android.

Matt Carter, president of the Global Wholesale and Emerging Solutions division at Sprint, asserted that the company was happy to serve as Republic’s supplier. When I asked whether Republic’s Wi-Fi-centric model, with its drastically lower price to the consumer, would pose a serious threat to the incumbent carriers, including Sprint, he said, “If the world operated based on just economic decisions, people wouldn’t go buy the most expensive cars on the planet, right”

Mr. Carter listed reasons that most consumers would prefer the wireless service obtained directly from a major carrier: a wider range of devices and the convenience of placing a call without having to tinker with Wi-Fi setup.

Republic “will resonate with a sliver of the marketplace,” Mr. Carter said. He compared wireless carriers to the major airline carriers, which still control a majority of the market despite low-priced upstarts like JetBlue or Southwest, which he described as appealing only to “a certain segment of the population.”

Philip Cusick, a J.P. Morgan analyst who covers telecommunications, says he doesn’t expect a major shift of customers to Republic Wireless. The price difference isn’t as great as it first appears, he says, when one considers that 80 percent of customers of AT&T and Verizon are on family or employer-related discount plans.

MR. MORKEN of Bandwidth.com says he knows that his company must lower the price of its handset â€" the industry rule-of-thumb for no-contract wireless services is that a simple handset cannot cost more than $99 and a smartphone, $149. But if Republic can offer me an Android phone with a generously sized screen for a reasonable price, I don’t see why, with Wi-Fi available at work and home, I should continue to pay an expensive-sports-car price for my wireless service.

“There’s a reason why the carriers around the world don’t want you using Wi-Fi for voice and text,” Mr. Morken says. “You will soon realize you shouldn’t have to pay what you’re paying today.”

Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E-mail: stross@nytimes.com.

A version of this article appeared in print on January 27, 2013, on page BU3 of the New York edition with the headline: Mixing, Matching and Charging Less.