Earthlink To Introduce WiFi Phones

Earthlink’s first muni WiFi network made news when it was launched in Anaheim, California, last week, but Earthlink’s VoIP VP Steve Howe, revealed some interesting news to me in a conversation this week. He says Earthlink plans to start selling WiFi-only phones starting in the fourth quarter of this year. The phones will work over Earthlink’s WiFi networks, and will have a voice plan somewhere between $10 to $25. Users have to pay extra for a data plan. That’s in contrast to the dual cellular-WiFi phones that the company plans to sell with its MVNO Helio, estimated to launch in the beginning of 2007.

Steve says Earthlink has narrowed down the WiFi phone search to two manufacturers, though declined to name which ones. (If you know which ones, or feel like speculating, add your comments.) He says over the past few days the company has been testing Earthlink’s WiFi phones over the company’s Anaheim network and that they’re working well up to 40 miles per hour.

Other companies have been offering WiFi-only phones for some time. Skype and Netgear have a WiFi phone, as does Vonage with UTStarcom. But Earthlink’s voice over WiFi could give a significant boost to these services going mainstream. The service could also boost the demand for Earthlink’s WiFi services, primarily because of the voice-data bundle. Earthlink will have to keep the prices low enough to attract mainstream users. High prices of cellular data services have been the main hindrance to mainstream adoption of such services thus far.

Still, there remain significant hurdles to Earthlink’s WiFi phone plan. Right now the phones are expensive. Steve says Earthlink will have to subsidize the phones for a good while, to push the industry standard below its current hundreds of dollars range. But “this business will get really interesting when the phones get down to the $40 range,” he says. Will this become another drain on Earthlink’s cash reserves? The company is spending like crazy on its municipal wireless projects.

Then there’s the basic risk of the citywide wireless deployments, and the big question: Will networks be able to attract enough subscribers to make enough money! There’s been fair enough discussion over that in recent days, and I wrote about this with an interview with Gary Betty earlier this year. It could happen, but given that the networks are so new, it’s entirely unproven.

Earthlink is also assuming that the price of WiFi phones will come down significantly, which will only happen if they become popular enough to support an economy of scale and a resulting price drop. That’s a more risky proposition and some speculate that WiFi-only phones are only transitional devices on the way to dual-cellular phones. With the Helio dual mode plan, the company can hedge its bet somewhat on the WiFi vs cellular debate.

When I asked him if the company had come into any major fights with cellular providers over the upcoming WiFi phones and cheap voice over WiFi offering planned, he says, “They probably don’t stay awake at night over Earthlink. But maybe they should.” It’s a savvy PR move to act as the savior for disgruntled phone company defectors. The company opened an Earthlink store in Seattle last week, and is planning to open another store in downtown San Francisco at 1 Front Street next week to convince more pissed Bell customers to join them.