T-Mobile First Out With Service That Melds Cellular And Wi-Fi

T-Mobile USA on Wednesday plans to begin selling a service nationwide that lets customers use one mobile phone over its cellular network and over Wi-Fi hot spots, hoping to entice more people to go wireless-only.

The HotSpot@Home service is the first of its kind in the U.S., analysts say. T-Mobile says the service makes it easier for customers to replace landline phones in homes.

T-Mobile's Wi-Fi service aims at improving the quality of in-building calls, where cell phone reception can be weak. Some people have resisted giving up their landline phones largely because of poor cell phone reception inside homes.

T-Mobile's approach offloads indoor calls to Wi-Fi networks. Users must have broadband Internet service via cable or phone company wires. T-Mobile customers plug a wireless router into cable or phone modems. Router software whisks wireless calls over Internet pathways set up by T-Mobile.

The new service makes T-Mobile a stronger rival of local phone companies, analysts say. Since T-Mobile -- unlike rivals -- doesn't operate a landline phone network, it's pushing wireless-only products.

"T-Mobile is the only cellular company that really is going all-out on the message of cutting the (landline) cord, pushing wireless substitution," said Charles Golvin, a Forrester Research analyst.

The No. 4 U.S. wireless firm, T-Mobile USA has more than 26 million subscribers. Its growth has been a bright spot for parent Deutsche Telekom (NYSE:DT - News) .

But T-Mobile must innovate to compete with much bigger AT&T (NYSE:T - News) and Verizon Communications (NYSE:VZ - News), analysts say. Sprint Nextel (NYSE:S - News) is No. 3.

"(The HotSpot@Home) is a good way for T-Mobile to tap into the zeitgeist of wireless substitution and generate some additional revenue," Golvin said.

AT&T and Sprint have tested products similar to T-Mobile's service but haven't offered them yet.

"U.S. wireless operators have resisted Wi-Fi because they expect dollars would be siphoned from (their) landline networks," said Randy Giusto, an IDC analyst.

"T-Mobile has come up with a rate plan that could work," Giusto said.

HotSpot@Home users will pay fees in addition to regular cellular plan fees. Regular plans cost $39.99 and up. Through September, T-Mobile plans to offer HotSpot@Home introductory plans at $9.99 and $19.99 for families. Charges then will rise to $19.99 and $29.99.

While overshadowed by Apple's (NasdaqGS:AAPL - News) launch of the iPhone, ThinkEquity analyst Anton Wahlman says "the long-term impact of T-Mobile's HotSpot@Home will be epic."

The dual-mode service also gives T-Mobile the benefit of reducing the load on its cellular network. That's key for T-Mobile, because it has the least radio spectrum among the big four wireless carriers.

To offer the new service, T-Mobile has developed software that provides smooth handoffs between cell and Wi-Fi networks.

"We think this is a big deal," said Joe Sims, T-Mobile's vice president for new businesses. "We know that about one-third of the calls placed on our network today originate in the home, and we know that the No. 1 concern that customers have is coverage in the house."

Some users worry about wireless-only service in emergencies. But Sims says T-Mobile has taken steps to ensure that 9-1-1 service works.

"We're in the landline displacement business," he said.

T-Mobile provides Wi-Fi access at more than 8,000 U.S. locations, including some hotels, airports and Starbucks (NasdaqGS:SBUX - News) stores. T-Mobile's new service is one of the first commercial products to use UMA, or unlicensed mobile access, technology for switching cell phone calls to Wi-Fi networks.

T-Mobile says its service will work with existing Wi-Fi routers in homes. It also will offer its own wireless routers, from D-Link and Cisco Systems (NasdaqGS:CSCO - News) unit Linksys. T-Mobile's router is free, after a $50 rebate, if customers sign up for two-year contracts. T-Mobile will offer cell-Wi-Fi phones from Samsung and Nokia (NYSE:NOK - News) for $49.99 with a two-year contract.