The announcement yesterday that T-mobile was launching a service to allow their subscribers to make cellular calls via WiFi networks (reported here in the NY Times and by Matt Marshall at Venturebeat) got me thinking back to my article on an ad-supported cell phone. The idea of using unlicensed spectrum to fill in coverage holes for cell phones has been around for a while. I remember being pitched on this idea back in 2001 by a great entrepreneur who was proposing to use Bluetooth as WiFi in cell phones wasn’t even a glimmer in anyone’s eye.
My article on an ad-supported cell phone suggested that the economics of providing a free cell phone and service was a tough nut to crack assuming today’s push based ad model – the user gets advertising content pushed at them (in return for the free service) but the resulting revenue (CPM) would be pretty low. I thought at the time that you would have to change the advertising model to pull content that the user was really interested in receiving – and so get a much higher CPM. Changing user behavior on top of building a business is tough – not impossible but requires a pretty deep pocket to fund the transition.
As I’ve been thinking through some of the new opportunities that might open up as a result of metro-wide WiFi networks (especially if they are free or nearly free), I came to the conclusion that a WiFi phone service was a much better candidate for being provided via an ad-supported model than a cellular phone. The capital costs of deploying WiFi across a metro-area are a fraction of what would be needed for a cellular network – to be fair, the expectations about service quality would likely be lower too – users would be much more tolerant of coverage holes – you can imagine a cellular/WiFi phone that preferentially used a WiFi network if it were available such as when you were at home or in a hotspot but used the cellular network when you were driving or out of WiFi coverage.
As the coverage of WiFi gets better, you could just start carrying a WiFi only phone with you – these are already on the market for different VoIP based services.
The economics of metro-WiFi suggest that generating a couple of dollars a month per user would cover the ongoing operating costs plus the capital amortization of the network build out – a much more tractable problem than the cellular approach if you are using ads to support the ongoing costs.
T-mobile is charging an additional $19.99 a month to use the WiFi adjunct service – quite a sweet deal! – extra revenue from a service that costs next to nothing to implement per subscriber, gets traffic OFF your cellular network and that usually someone else foots the bill for the broadband connectivity). I can’t see this pricing lasting – as metro WiFi gets built out by the Cities and folks like Google, an ad supported alternative to the cell network looks a very interesting overlay – one answer to the saturation question I posed some time ago.