BT Group PLC is about to launch a cell phone in Britain that can make inexpensive calls over fixed-line networks. The handset, code-named Bluephone by BT, is designed to function as an ordinary cell phone when the user is out and about, but then relay calls via a fixed-line connection when the user is at home or in the office.
The progress of Bluephone, together with a similar handset offered by KT Corp. of South Korea, is being closely watched by telephone companies around the world because it may show how to halt the drift of voice traffic from land-line networks to cell phone networks. Wireless traffic is getting an added boost as more callers use their cell phones at home because they keep most of their contacts' telephone numbers in these handsets and because cell phone call charges are falling.
Not surprisingly, most fixed-line telephone companies are seeing the voice traffic traveling over their networks shrink. BT's revenue from voice calls and line rental fell 9 percent in the first quarter, while in the United States, SBC Communications Inc. of San Antonio, BellSouth Corp. of Atlanta, and Sprint Corp. of Overland Park, Kan., are among those facing a similar squeeze in fixed-line voice revenue. They are all testing hybrid handsets, similar to Bluephone, but aren't yet ready to launch.
"Bluephone is an important lighthouse project for fixed-line operators around the world," says Bob House, senior vice president in London with consultancy Adventis Corp.
BT executives hope the Bluephone -- which works with high-speed Internet, or broadband, connections -- will lead a fight back against the cell phone industry.
"You shouldn't necessarily assume that fixed-mobile substitution is all one way," Ian Livingston, head of BT's retail division, told analysts last month. BT will announce a new brand name for Bluephone when the handset is formally launched Wednesday.
For SBC and BellSouth, which jointly own the largest U.S. cell phone service provider, Cingular Wireless LLC, hybrid phones are a means to distinguish themselves from rivals. "We are looking to take advantage of both our wireless and wire-line assets," says Michael Coe, a spokesman for SBC.
In South Korea, customer response to KT's hybrid phone has been modest.
KT says 45,000 customers had bought the $500 handset by March, two months after its full commercial launch in January. A KT spokeswoman says the company has only just started promoting the handset heavily through television commercials.
KT charges users of its hybrid phone the equivalent of 3.9 cents for a three-minute call when they are at home, compared with less than half that for a 10-second regular cell phone call.
A BT spokesman declined to say how much the company will charge for the Bluephone or to make calls in Britain. Analysts expect BT to price the handset much lower than KT's $500 model but offer a smaller discount on fixed-line calls.
Like KT's version, the first Bluephone, made by Motorola Inc. of Schaumburg, Ill., uses a beefed-up version of the short-range wireless technology called Bluetooth to connect to a user's fixed line. Skeptics question whether Bluetooth, which is typically used to hook cell phones up to wireless headsets or personal organizers over distances of a few feet, is really capable of providing good coverage throughout a home.
The Bluephone is being launched a year behind schedule, partly because of technical glitches with the Bluetooth connection. In Japan, NTT DoCoMo Inc., the cell phone unit of fixed-line giant Nippon Telegraph and Telephone Corp., is using the more powerful Wi-Fi wireless technology to produce its own version of the Bluephone. Most U.S. carriers are also working on Wi-Fi models.
Eventually BT also plans to use Wi-Fi in its Bluephone, but it says Wi-Fi chips are still too expensive to put in a handset aimed at the mass market. In any case, a BT spokesman maintains that the audio quality provided by Bluephone will often be better than that offered by a cell phone because cell phone coverage can be patchy inside buildings. The KT spokeswoman says her company hasn't had any complaints about the quality of calls.
Cell phone service providers tend to brush off the threat posed by Bluephone and similar hybrid handsets. If Bluephone proves popular, Arun Sarin, the chief executive of Vodafone Group PLC, says it will be easy for his company to counter it by offering customers cheaper cell phone calls when they are near their homes.
"We can do that with three [software] code changes," Sarin said recently.
But Matt Bross, BT's chief technology officer, says there is more to Bluephone than cheap calls. He says the handset will evolve to provide customers with a range of high-speed multimedia services, which will be superior to those offered by cell phone networks.