Image: Video on an iPhone
Manuel Balce Ceneta  /  AP file
AT&T says it now has more than 20,000 Wi-Fi hotspots around the country in places like Starbucks, Barnes & Noble, McDonald's, hotels and airports. The Wi-Fi service is free for iPhone customers, as well as for those who have certain other smartphones. The use of Wi-Fi helps ease cellular network traffic, and is being encouraged by several wireless carriers now.
updated 3/23/2010 8:53:50 AM ET 2010-03-23T12:53:50

With increasing network congestion and data demands, wireless carriers are now welcoming, even encouraging, customers’ use of Wi-Fi on their smartphones. Some are also employing devices known as femtocells, which can boost cell coverage at home as well as take some pressure off networks.

AT&T, whose network is the most dramatically affected by its legion of iPhone users, has been testing femtocells in some cities, and may announce a femtocell service for its customers this week at the Las Vegas gathering of CTIA, the wireless trade industry association.

The nation's four largest cellular carriers — Verizon Wireless, AT&T, Sprint and T-Mobile — are planning to upgrade their networks to 4G, or fourth-generation, wireless which will handle larger amounts of data, such as video downloads or streaming music, more fluidly. But 4G networks will not be built out nationwide for at least a few years, and improvements are still being made to 3G, or third-generation, networks.

Femtocells, which resemble Wi-Fi routers, can route calls and data over a home broadband connection. Verizon Wireless and Sprint both have femotcell programs that are more voice- than data-oriented, said Aditya Kaul, ABI Research practice director for mobile networks. Sprint, too, may soon introduce femtocells that are "data-oriented."

Wi-Fi, in particular, has gone from being a perceived threat to a welcome relief for carriers, who are working feverishly to make sure their networks can handle increasing amounts of data traffic generated by users of smartphones like the iPhone, BlackBerry, Palm, Motorola Droid and Google Nexus One.

Previously discouraged
A few years ago, Wi-Fi "was somewhat discouraged because operators were worried if people had a device with Wi-Fi in it, it would cut into data plan revenues," said Peter Jarich, Current Analysis' research director for telecom infrastructure and mobile networks.

"But now that kind of issue goes away, because if you're going to buy a new smartphone or some sort of device with data capabilities, carriers are requiring data plans with them." And, "if they're requiring the data plan ... they're getting their money one way or the other," he said.

"It's much more in their interest to say, 'Yeah, go on and use the Wi-Fi, get your traffic off the network and then I can free it up for everyone else.' "

Verizon Wireless, for example, previously didn't carry a large selection of smartphones equipped with Wi-Fi. When the high-profile BlackBerry Storm landed exclusively at the carrier in late 2008, it was sans Wi-Fi. But its successor, the Storm2, has it, and in general, "you're seeing it in more and more devices," said Jarich.

Tiered pricing?
Monthly data plans for smartphones start at $30 at AT&T, Verizon Wireless and T-Mobile. Sprint's "Simply Everything" plan starts at $69.99 a month, and includes unlimited data and text messaging, and 450 voice minutes.

In a still-shaky economy, carriers aren't looking to raise rates — yet — although some believe it's inevitable, perhaps as way of discouraging heavy-data users, especially when 4G becomes a reality.

"Operators are going to have to change their pricing structure, doing tiered mobile broadband, rather than 'all-you-can-eat' packages," said Kaul of ABI Research. "This will take away some of the excessive network load."

A "big topic" in the industry is "fair use" pricing, said Jarich. Maybe carriers will say, 'When you get to a certain point of usage, we limit the bandwidth you can get at certain times, or maybe we promise all-you-can-eat data, but after you’ve used a certain amount, then if that cell site you’re on is congested, you sort of go to the back of the pack.'

"Ultimately, the idea is, how do we avoid the network being overloaded and how do we assure that there’s capacity for everyone?"

Justin Denison, vice president of strategy for Samsung Mobile in the United States, says one future possibility is for device makers to collaborate with carriers on how data use is "scheduled" to help ease congestion.

"Let’s say you want to download 'Avatar' on your new Samsung smartphone, and you want do do this during rush hour on the train," he said. "That’s probably the least desirable time for you to download a movie, obviously, because there’s lots of people wanting to talk on the phone at that time.

"So the carrier might say, 'You know, we’d prefer that you not do it then,' or ask you, 'Can we delay your download until sometime later this evening?' Maybe you don’t intend to watch it tonight, maybe you intend to watch when you get on a flight at 10 p.m., so you theoretically would give the network the option to download that movie to your phone when it was most desirable for the network."

Smartphone usage grows
The iPhone may be the poster child for intense data usage — Web surfing, downloading of files and videos, e-mail and music streaming — but is by no means the only culprit.

In the United States, the iPhone has 25.3 percent of the smartphone market, second to Research in Motion's BlackBerry line of phones with 41 percent, according to market research firm comScore. Smartphones powered by Microsoft's Windows Mobile operating system are third, with 15,7 percent, Google's Android is fourth at 7.1 percent, and Palm has 5.7 percent. ( is a joint venture of Microsoft and NBC Universal.)

"When you’re on Wi-Fi, you’re not using the mobile broadband network, and that effectively helps us manage traffic better," said Mark Siegel of AT&T, the exclusive carrier of the iPhone in the United States.

"If you’re on a smartphone plan, you get access to AT&T’s Wi-Fi hotspots in the U.S. at no additional charge, so it’s kind of a double benefit," he said. "It helps us manage the network better, and you can continue to use your service at no additional charge."

AT&T says it now has more than 20,000 hotspots around the country, in places like Starbucks, Barnes & Noble, McDonalds, airports and hotels.

Femtocell costs
Femtocells are not yet as pervasive as Wi-Fi and can be costly. Verizon Wireless charges $249.99 for its Verizon Wireless Network Extender, but there is no monthly service charge.

Sprint charges $99.99 for its Airave Base Station and monthly plans are $4.99 for "enhanced coverage," $10 for a single phone line unlimited calling plan or $20 a month for multiple phones.

"Even though femtocells are still using the airwaves of the (mobile) operator, they do provide some offload because that traffic that’s being carried by the femtocell is being taken off the 'macro' network," said Charles Golvin, Forrester Research principal analyst.

"Wi-Fi is not in the same (wireless) spectrum as your 3G network, so there’s less worry there (for the carrier) about interference, and it’s something the operator doesn’t have to control like they would a femtocell," said Jarich of Current Analysis.

"Operators need to work on different fronts and not just femtocells," said Kaul of ABI Research. "Apart from femtocell and Wi-Fi offloading, they need to enhance their backhaul bandwidth capabilities at the cell sites.

"While femtocells are great indoors, you are also going to see higher-power femtocells, called picocells or microcells, hook onto lamp posts in city centers, providing capacity outdoors."

Using Wi-Fi, femtocells, and perhaps in the future, "scheduling" downloads to devices — all may be needed, said Denison of Samsung.

"It’s just the reality of the fact that the bandwidth of the wireless Internet is less than the fixed Internet," he said. "It's a matter of figuring out how do you cram that fixed Internet experience onto a wireless device and get it to as many people as possible?"

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