Much has been written lately on the mobile operator's need to address the increasing demand for data services, particularly from smartphone users.  It's clear that the market for mobile phones is bifurcating into feature phones and smartphones.

While there will always be a market for simple 2G devices to make calls and send the occasional text, the growth in subscribers and revenues is clearly in the newer world of smartphones.  These devices, with large displays and fast 3G connections, have become increasingly attractive to consumers as the gateway to a mobile Internet.

Of the three different service "categories" available to smartphone users, voice continues to be the largest source of revenues for mobile operators, with some reports suggesting that it accounts for as much as 75 percent of total mobile revenues worldwide.

Steve ShawIn addition to voice, mobile operators often provide their own hosted packet data services, the most popular of these being MMS, and sometimes mobile TV.  The third service type is access to the plain old Internet so subscribers can visit popular websites like YouTube, Facebook, Pandora and more.

Today, most smartphone subscriptions come with an additional fee for (un)limited access to hosted data services.  Yet the irony is that the majority of data traffic is generated by Internet access rather than these hosted data services for which operators charge for access.  Mobile operators typically derive little or no value in managing or monitoring Internet data traffic.

By charging a fee, operators are, to some extent, able to monetize mobile Web access.  But it's become clear the revenues aren't keeping pace with the operator investment required to support millions of smartphones accessing Internet content.

Perhaps more concerning is the growing backlash from users. Smartphone subscribers expect the mobile Internet will behave similar to the fixed Internet to which they are accustomed, with exceptionally low latency and very high-speed connections.  However, the very nature of wireless makes it difficult to match the performance of the fixed network.

The situation is exacerbated by location – subscribers access upwards of 50 percent of their mobile data indoors (home and office), yet mobile data performance has been shown to drop off dramatically even just a meter or two inside the halls of a building.

It's a combination of these issues that have driven mobile operators to explore alternative methods for addressing demand for the mobile Internet.

Why Wi-Fi?
In a recent Business Week article, mobile industry pundit Mark Lowenstein is quoted as saying: "Two years ago, all carriers thought Wi-Fi was a threat, now it's a lifeline."

Activities by mobile operators around the world confirm this – particularly in the United States.

AT&T has become the largest Wi-Fi hot spot provider in the world, buying up service providers like Wayport while investing in their own outdoor Wi-Fi networks like the recently announced Times Square installation.

It seems that device vendors have jumped into the Wi-Fi market as well.  The addition of Wi-Fi to smartphones is a significant trend. It's estimated that nearly 4 in 5 smartphone devices already contain Wi-Fi. Thus the devices that are driving high data usage are being deployed with a technology ideal for alleviating the demand. 

Yet the most important aspect of Wi-Fi is its massive installed base. More than 50 percent of homes with broadband connectivity already have Wi-Fi installed today.  Clearly, Wi-Fi is a ready-made network solution for offloading mobile Internet traffic indoors.

Relying on this base of Wi-Fi connectivity, operators today do benefit from "basic" Wi-Fi offload.  When at home, a smartphone automatically attaches to Wi-Fi and maintains a dual connection – the cellular radio attached to the outdoor macro network for voice and mobile data services, the Wi-Fi radio to the indoor access point for mobile Internet traffic.

In a pinch, this approach can be used to get content like YouTube videos off the 3G network, but as mobile operators are finding, there are limitations to this "basic" Wi-Fi offload approach.

Limitations of "Basic" Offload
While "basic" Wi-Fi can move YouTube-video watching from the cellular network, there are some drawbacks.  First, the smartphone is still relying on the outdoor macro network for voice and SMS services.  If there is a coverage challenge, Wi-Fi alone doesn't help, particularly for an operator's primary revenue-generating service — voice.

Basic Wi-Fi may actually be driving subscribers into the arms of Skype.  While the smartphone may struggle with cellular coverage, it likely has  "five bars," or full coverage, from Wi-Fi.  For frustrated consumers, it may be easier to turn to a Wi-Fi based VoIP calling service like Skype rather than struggle with poor indoor 3G coverage.

Finally, a smartphone must have both the cellular and Wi-Fi radios powered on to provide basic Wi-Fi offload.  In this case, there is a significant added power drain on the battery.  Thus, consumers have become trained to associate Wi-Fi with poor battery life, and in fact may intentionally leave it off – immediately nullifying any offload benefit associated with Wi-Fi.

Smarter Wi-Fi
Wi-Fi can be smarter.  Based on the existing 3GPP Generic Access Network (GAN) specification, mobile operators can achieve maximum benefit from their Wi-Fi solutions with a smarter Wi-Fi approach.

With Smart Wi-Fi, all mobile services are securely delivered to the smartphone over the Wi-Fi connection.  Operators achieve complete network offload as voice, data and Internet traffic can all be routed over Wi-Fi -- not just Internet/Web services.

Because subscribers get all cellular services over Wi-Fi, they have improved coverage and "five bars" of service from the existing Wi-Fi access points in their homes or offices. 
This approach places the cellular radio into a hibernation mode, leaving a single radio powered on to deliver services resulting in a more consistent battery performance experience.

Finally, mobile operators can offer targeted Wi-Fi-based voice service offers.  Offering discounted or free calling when a subscriber is attached to Wi-Fi encourages Wi-Fi usage – in turn delivering maximum offload benefit, and providing a mechanism to combat third-party over-the-top Wi-Fi calling services.

Mobile operators are investing heavily in solutions to improve the performance of mobile services – particularly for smartphone subscribers indoors.  Wi-Fi has emerged as a natural technology to alleviate network congestion and improve throughput.

Yet with smarter Wi-Fi offload solutions, operators are able to derive significantly more – reducing churn by improving coverage, improving Wi-Fi battery performance and addressing the mobile VoIP threat. 

Steve Shaw is vice president, Corporate Marketing, at Kineto Wireless.