NEW YORK -- Now that some Wi-Fi "hot spots" have grown into broader neighborhood "hot zones," the next wave is waiting: Phones and gear that send conversations over wireless Internet networks - for free or at a fraction of the cost of traditional calls.
Mobile phone maker Motorola Inc. plans to introduce a device that would seamlessly switch calls from cellular networks to cheaper Wi-Fi networks wherever they're available. Discount carrier IDT Corp. is testing consumer Wi-Fi phone service in Newark, N.J.
If successful, Wi-Fi calling would be one more factor decreasing calling costs and shrinking revenue at traditional carriers.
"The potential is enormous as an alternative to conventional telephony," said John Jackson, a wireless-technology analyst at The Yankee Group.
Until recently, Wi-Fi phones were limited to businesses and colleges that could set up Wi-Fi in a building or a campus. Now, Wi-Fi "hot zones" range from a 100-block section of Spokane, Wash., to the Gare du Nord train station in Paris, broadening the market for Wi-Fi phone service.
"Hot zones are proliferating," said Robert Schwartz, IDT's executive vice president. "We think in some segments of the market, this could replace home phones."
Wi-Fi phones employ a technology known as Voice over Internet Protocol, which translates conversations into packets of data that are sent over the Internet, instead of the old, circuit-switched phone system, for part of their journey.
The technology slashes the traditional notion of "long distance" - just as there's no extra charge to send e-mails around the world - and cuts out some of the access fees regional Bell carriers charge.
Wi-Fi antennas broadcast a high-speed Internet connection over the radio spectrum to computers within a few hundred feet. Because that part of the spectrum is unlicensed, free and low-priced Wi-Fi access has cropped up in cafes, bookstores and airports. There are about 18,000 Wi-Fi hotspots in the United States, and it's used in hundreds of thousands of homes.
In theory, whenever people with Wi-Fi phones have access to a hot spot, they might have little inclination to spend extra on a cell phone call. That could terrify the cellular carriers that have spent billions building their networks.
The rosiest predictions estimate Wi-Fi phoning won't instantly be a big moneymaker. ABI Research predicts the Wi-Fi voice market will be just $20 million by 2009. By comparison, the five largest U.S. telecom companies had $188 billion in revenue and $18.7 billion in profits in 2003.
Still, voice over Wi-Fi could siphon business from landline and wireless carriers already struggling amid intense competition.
Consumer long-distance companies like IDT see broad new markets for Wi-Fi phoning.
IDT sells 20 million calling cards a month, mostly to new immigrants who may not have their own phones. The Wi-Fi phone packages the company is testing would target the same demographic, with prepaid service, like its calling cards. Schwartz said IDT would expand the offering beyond Newark if it's successful.
One of the leading Internet telephony providers for consumers, Vonage Holdings Corp., plans to offer a Wi-Fi phone for home use later this year. Motorola's device is expected in the second half.
Phones from SpectraLink Corp., a Wi-Fi phone company that sells to businesses, range from $400 to $650. But the next generation of devices is expected to cost less - IDT estimates less than $100. The company won't disclose who made the devices for the Newark test.
IDT, which also offers home Internet phone service, is testing technology that would turn handheld computers running Microsoft Corp.'s PocketPC software into a Wi-Fi phone.
Internet-phone company Skype Technologies SA - launched by the creators of the Kazaa music-swapping program - already has introduced software that lets users do precisely that, for free, though Skype members can call only each other.
With big telecom carriers showing little interest in advancing voice over Wi-Fi, David Gross, a senior analyst at Wireless Data Research Group, believes the big test will be whether businesses adopt it, at the very least for internal calls.
Some already have - and are enjoying both cost savings and extra functions made available by voice over Wi-Fi.
Vocera Communications Inc., a privately held maker of Wi-Fi communications products, has signed on about 65 hospitals, libraries and retailers, including Best Buy Co. and Target Corp.
Vocera's voice-activated "communicators" clip on to clothes, can be worn on a lanyard and act, in some ways, like a walkie-talkie. They track users by job title, so a nurse can say, "Get me a cardiologist" and the system will find the nearest one.
"It used to take 14 steps to start an IV. Now it's down to three," said Mark Zielazinski, chief information officer of El Camino Hospital in Mountain View, Calif., which has been using Vocera for a year. "It eliminated telephone tag and improved communications."
Many college campuses also have extensive Wi-Fi networks. Dartmouth College, a leader in campus Wi-Fi, now gives students software for making free long-distance calls over the wireless network.
Larry Levine, Dartmouth's director of computing, said the fact that calls could be made anywhere from a handheld computer or a laptop was one factor.
But the big reason behind the switch?
"This is the way phones will be done," he said. "At some point, it makes no sense to stay with old-style telephony."