How the Internet is killing the cell phone

Voice-over-broadband programs prove that mobile apps and 3G data networks can do all the cell can -- and more.

By InvestorPlace Mar 25, 2010 11:39AM

Cell phone stocksApple (AAPL) might as well drop the “phone” from iPhone, the way the industry is going. It appears that the Internet is slowly but surely turning the telephone into one of those technological fossils akin to Betamax tapes, 8-tracks and laser discs.

 

Apple’s App Store recently began offering Line2, a program that turns the iPhone into a dual-mode phone complete with a second number for just $1. That’s nice for those who want an extra line to keep business calls free from personal ones.

But the real appeal is that Line2 can make and receive calls any time you’re in a wireless hot spot, sending voice over Wi-Fi and not the iPhone's voice plan. The service costs just $15 a month, and is a hit among those who are frustrated by the spotty network of AT&T (T).

And starting today, if you’re a Verizon (VZ) customer with a smart phone and a data plan, you can download a Skype Mobile application that allows you to make and receive unlimited Skype-to-Skype voice calls anywhere around the globe. Some phones that accommodate this feature include the BlackBerry Storm from Research In Motion (RIMM) and the Droid by Motorola (MOT) -- as long as they have the proper data plan.

Both of these newer apps come on the heels of Vonage (VG), which has already seen some success with its voice-over-broadband technology. In 2009, Vonage launched an app for smart phones that provides the same service as its in-home technology for $25 a month. The application works on the iPhone, iPod Touch and BlackBerry devices among others.

So with so many companies offering voice service to people who already own cell phones, how long is it before Verizon and AT&T stop even worrying about the calling side of things and just opt to become data networks instead?


Voice call capabilities of next-generation handsets have already become an afterthought to bells and whistles like Web browsing, video-game apps and GPS navigation systems. And with the blossoming of tools like Vonage, Line2 and Skype Mobile, service providers like Verizon and AT&T may no longer even have to worry about providing call capabilities. It’s realistic to think that in a few years, all that will be provided is a data plan and customers can pick and choose the voice applications they want. “Calls” will be placed over the Internet, taking up comparatively less bandwidth than many data hungry applications.

 

The telecom industry has already started adapting its old model away from voice communications. Marketing messages a decade ago used to talk about rollover minutes and family calling plans, and now they talk about data packages and download speeds. The most obvious example is the death of Verizon’s iconic “Can you hear me now?” campaign. It’s no longer about call quality -- it’s about the capability to provide speedy and reliable data service. In Verizon’s own words, “It’s the network.”

The death of the cell phone is still likely several years away, since it  isn’t even the gold standard for voice communication as of yet. According to 2009 numbers, a mere 20% of American households do not have a traditional landline telephone and use a cell as their only line. But that may still be a function of how reliable rural networks are and whether certain areas allow handsets like the iPhone and the Droid perform at their full potential.

 

Once data infrastructure is in place across the majority of the United States, it’s likely that even more applications like Vonage, Line2 and Skype will pop up to compete with traditional cell phone service. And you can bet that the next generation of tablet computers like the iPad will have access to these tools just like current smart phones do.

 

When that happens, the cell phone’s end will be near. In its place, consumers will simply be carrying digital Swiss army knives that do it all -- including voice communication.

 

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