VoIP Goes Mobile

Instead, Goldman places the international portion of the calls -- roughly 100 minutes a month -- through a service called "Gorilla Mobile" that relies on Internet-based technology to route wireless calls virtually toll-free. Goldman, a user of Apple's (Nasdaq: AAPL) iPhone, estimates that he saves hundreds of dollars a year with Gorilla's service. He stands to cut wireless bills even more by signing up for another, iCall, that's due for the iPhone in the coming weeks. The service will let him place low-priced calls from WiFi hotspots -- bypassing the AT&T network altogether. "Once I can make calls using the WiFi network, I will, in all likelihood, reduce the monthly minutes I have [with AT&T,]," Goldman says.

Gorilla, iCall, and a growing number of other services rely on what's known as "Voice over Internet Protocol" (VoIP) technology that delivers speech via the Internet in much the same way as e-mail. VoIP calling is already raising a ruckus in telecommunications, putting pressure on the price of land-line calling and luring subscribers toward upstarts like Vonage and Comcast (Nasdaq: CMCSK) , and away from incumbents such as AT&T and Verizon). Now, the technology threatens to erode sales for mobile-phone service providers too.

Jajah's Growth Spurt

By 2011, the number of mobile VoIP users around the world may rise to 100 million from 7 million in 2007, according to ON World, a consulting firm based in San Diego. ON World estimates that in 2011, mobile VoIP voice services may generate US$33.7 billion, up from $516 million in 2006, the most recent year for which the figure is available. If that sounds like a breakneck pace, consider the growth trajectory for Jajah, a provider of wireless VoIP, which had 10 million users in April -- a fivefold increase in just a year.

Wireless carriers are expected to generate $700.7 billion in sales of voice services this year, according to consulting firm Ovum. Still, carriers in the fiercely competitive mobile-phone industry will be none too pleased with newcomers snapping up a portion of the almost one-quarter of all wireless minutes now devoted to long-distance and international calls. Insight Research estimates that together, international and long distance will make up 24 percent of the 1.2 billion wireless minutes used this year.

VoIP technology is likely to make deeper wireless inroads soon. Skype , the eBay-owned service used by more than 338 million people to make free PC-to-PC calls, later this year plans to release a new product called "Skype for your mobile" that will let customers use local wireless minutes to make international calls.

Truphone Meets Nokia

Wireless VoIP services vary widely in how they work. Some, including Jajah, can be used with a basic cell phone and require that users call a local number that connects them to the service that routes a call overseas. Others are more involved, requiring that the user download software onto an Internet-enabled cell phone. In some cases, calls must be placed via WiFi network. What the services have in common, though, is that each helps wireless users circumvent at least some of the charges associated with long-distance wireless calling.

As complicated as wireless VoIP services may sound, they've come a long way. Until recently many phones couldn't gain access to the Web via WiFi networks. Others couldn't download the necessary software. But the number of WiFi phones sold globally is expected to grow to 33 percent of the total by 2011, from 5.5 percent this year, according to research firm Gartner (NYSE: IT) . Smartphones such as Apple's iPhone and Research In Motion's (Nasdaq: RIMM) BlackBerry, which provide advanced Web services, are gaining in popularity too.

Indeed, many downloadable wireless VoIP applications are being offered through Apple's iPhone App Store. Truphone is one such tool. When used on Nokia (NYSE: NOK) e61 and Nokia n95 smartphones, the British-developed service lets users make calls for a few cents a minute using a data plan rather than wireless voice minutes. Calls to other Truphone customers using Nokia N-series or E-series devices are free. So in theory, a user could save money by purchasing an unlimited data plan in tandem with the lowest-priced voice plan necessary. "Web calling will put price pressure on the incumbents," says Truphone CEO James Tagg. AT&T declined to comment for this story. Verizon Wireless , the No. 2 U.S. mobile-phone company, didn't respond to requests for comment.

Restrictions on VoIP Usage

Many handset makers limit VoIP usage on their devices. Apple, for instance, prohibits software developers from enabling VoIP calls over cellular networks -- though applications that route these calls via WiFi are allowed. "I don't think carriers are going to let VoIP to take as much revenue [as it's taken from residential phone providers]," says Rebecca Swensen, an analyst at consultancy IDC. Case in point: T-Mobile USA , which has tweaked its handsets so that even calls made via WiFi hotspots count against subscribers' wireless minutes, unless the users sign up for an additional calling plan, costing $10 a month.

Yet in a bid to stay competitive, some telecom providers are considering offering free VoIP calls within certain applications. A company called "Global IP Solutions," which licenses mobile VoIP technology, is in talks with several second-tier wireless carriers in the U.S. to enable free Web calls on certain applications, such as interactive wireless gaming. "Laws of competition are starting to drive this," says GIPS CEO Emerick Woods. He declined to identify any of the carriers.

Some carriers abroad already offer free VoIP calls to users within certain social networks. In late August, carrier 3, which is owned by Hutchison Whampoa and offers wireless service in countries including Britain and Italy, will begin selling a new version of its popular Skypephone that lets users make free calls to Skype contacts without using voice minutes.

Skype Out Calling

Later this year, Skype will launch its Skype Out service, letting 3's Skype customers make calls to home and wireless phone numbers of non-Skype users.

"I think we are seeing a real change in operator approaches to Skype," explains Tony Saigh, who heads business development for mobile at Skype. "There's a realization that providing customers with additional modes of communications is good. The real battle is how do you keep your customers engaged."