Using wi-fi to access the Internet on mobile handsets is rapidly emerging as an alternative to phone networks as customers look for ways to save money and carriers grapple with the issue of network congestion.

A wi-fi connection offers better indoor reception, faster download speeds and quality streaming compared with a normal phone network. And it allows users to preserve their network minutes. Wi-fi has been popular with notebook computers, but the technology is still at a nascent stage with mobile phones. The feature is gradually being made available on more handsets and customers have started to ask for it while making purchases. “Before, it used to be a neat, add-on feature. Now it's an absolute must-have,” ABI Research analyst Michael Morgan said. “You have to bring this to the table if you want to have a successful smartphone device.” It is only recently that carriers have started to trust wi-fi, Morgan said. Initially they viewed it as a competition to their cellular networks, he added. The wi-fi feature was available on about 55 percent of smartphones shipped in 2009, and that is expected to increase to 65 percent to 70 percent in 2010, Morgan said.

Wi-fi capable smartphones, which received a shot in the arm with the launch of the Apple iPhone, are offered by Nokia, Research in Motion, Motorola, HTC Corp and Samsung Electronics. Nokia is the leading market-share vendor for dual-mode wi-fi handsets, according to market researcher In-Stat. While about 12 percent of all mobile handsets had wi-fi capability in 2009, it could be a feature on nearly a third of mobile phones four years from now, figures from In-Stat show. “We are forecasting about 183 million phones with wi-fi in 2010,” In-Stat analyst Allen Nogee said. The total phone market is expected to be about 1.2 billion for the year. With the growing market for smartphones, consumption of data on mobile devices is growing significantly, creating a lot of pressure on carrier networks.

Wi-fi in phones is seen as an alternative to core carrier networks, not just helping carriers offload traffic but offering consumers with a cheaper and faster option over third generation or the next generation networks like long term evolution. “Operators are putting wi-fi in phones to offload some of the traffic from their 3G networks because they are finding that many of the 3G networks are being overloaded with data usage,” analyst Nogee said. Service providers are also using wi-fi to expand their touchpoints with customers. “Major service providers provide free wi-fi for their customers at places like McDonald's and Starbucks,” Dell'Oro Group analyst Loren Shalinsky said. Apart from accessing the Internet, wi-fi is used to make long distance calls via voice over Internet protocol at lower prices. But 90 percent of wi-fi use on phones is still for data, ABI's Morgan said. “Wi-fi offload is certainly an effective strategy for carriers to help manage the capacity demands on their network and it is one of the tools that carriers and handset makers will take advantage of,” Forrester Research analyst Charles Golvin said. “But it's not the silver bullet to solve the problem. It's just one of a number of pieces of the overall solution.”

The market for wi-fi in phones includes not only handset manufacturers and the carrier providers, but also chipmakers and network equipment makers. Chipmakers like Broadcom, Atheros Communications Inc, Qualcomm Inc and Marvell Technology Group are expected to be among the prime beneficiaries as demand for the technology grows. Companies like Aruba Networks and NetGear Inc, which sell the access points, will indirectly benefit as more devices that are connected to wi-fi will create more demand for bandwidth carried by the wireless networks. Despite the growth ahead, wi-fi has its drawbacks: integration between cellular and wi-fi networks, poor power efficiency and low awareness that such a feature exists. There are also issues in getting quality signals. “I think people will use wi-fi in certain situations such as at their homes or in places where wi-fi is available. But wi-fi is not available in many places and probably never will be,” Nogee said.

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