ZER01 Communications attracted much attention recently when it announced a new nationwide unlimited mobile voice service for $69.95 per month, with no roaming fees, contracts, credit checks or commitment. The prepaid service also includes unlimited wireless data connectivity at no extra cost. The pricing alone, which is well below major carrier's unlimited plans for voice calling only, has the potential to shake up the U.S. cellular market. But the technical and business model underlying the service could turn the market on its head.What makes ZER01 unique is that it uses only wireless data links to handsets, rather than cellular voice links. It relies on major GSM cellular carriers for those links and transports both voice and data over them, encoding the voice as IP packets. It puts client software on the handset, gives each handset its own IP address, and sets up a VPN (virtual private network) or encrypted data tunnel between the handset and its switches. Except for those "last mile" wireless connections, the service runs entirely over the company's own switching and backbone network infrastructure.
This approach makes ZER01 a true mobile VoIP carrier. Though some reports have described it as an MVNO (mobile virtual network operator), ZER01 disputes the description. That term typically refers to companies simply selling under their own names a major carrier's mobile service running over the carrier's network. ZER01, by contrast, is selling its own service running entirely over its own network except for the wireless last mile.
CEO Ben Piilani explained the distinction in technical terms. "We're providing the data down to the end consumer," he said. "We're not using the carriers' data to carry [the voice] to the consumer. We're not reselling their data, we're sending our data using their GSM network."
ZER01's service uses technology developed by its parent company, Unified Technologies Group Inc. The accomplishment was not trivial. VoIP over the fixed Internet is challenging enough; mobile VoIP has to deal with the inconsistencies of wireless connections as well. These include significant potential for lag or delay, along with differences in throughput among the various types of services. The proof is in the results: ZER01 can deliver calls not just over GSM 3G data connections but also over slower links such as GPRS and EDGE. Piilani said the calls often sound better than with cellular voice services. The real proof, of course, will be users' verdicts once the service goes commercial.
The other radical aspect of ZER01's approach is its open network. The carrier doesn't subsidize handsets, and so will let any GSM device connect to and use its service. The client software is currently available only for Windows Mobile devices, but ZER01 is working on versions for Android, BREW, iPhone (jailbroken), Java, RIM and Symbian devices, Piilani said. Also remarkable is that the service includes truly unlimited data service for Web access, email or any other use. By contrast, cellular carriers' "unlimited" data plans, which involve hefty fees on top of the monthly voice charges, are not really unlimited because of so-called "acceptable use" policies, according to Piilani.
The new service could radically alter the U.S. mobile landscape in two ways. First, the low price is a direct result of the fact that VoIP is inherently cheaper than traditional voice services, wireless or otherwise. Thus even though ZER01 is paying cellular carriers for the wireless data links, it can still make money charging under $70 a month (with a one-time $30 activation fee), and even throw in unlimited international calling to 40 or so countries (to nonmobile numbers) for another $10 a month. Such economics will inevitably influence the major cellular carriers themselves to move toward offering their own VoIP-over-wireless-data services. It might eventually even persuade them to lower the price of their voice plans.
Second, ZER01's low rates make nonsubsidized handsets more attractive. The company is talking to mobile-phone manufacturers to try to get them to offer something close to wholesale prices for its customers. In general, phones should cost from $100 to $200 for low-end models up to $700 for high-end devices, Piilani said. Many users will find that the cheap calling makes paying for the phones themselves worth the expense. That too will disrupt the dominant cellular carriers' subsidized-handset business models, and perhaps convince them to move in the same direction themselves.
ZER01 will launch its service in beta at the CTIA Wireless show at the beginning of April. Commercial service is likely to begin a few months later.
