Home Phone Service for $10 a Month?

T-Mobile's @Home service is designed to retain subscribers, but it could deal a blow to Web-calling companies like Vonage

By Olga Kharif

It's quite an attention-grabber. Starting in July, T-Mobile USA will begin offering to pay off your mortgage or make your rent payments. It'll even give away two brand-new homes. It's all part of a new marketing campaign by the wireless operator, but the push isn't to promote a wireless service. T-Mobile is making all this noise over the fact that it's now selling home telephone service.

Called T-Mobile @Home and unveiled on June 25, the service lets users quickly switch their existing home phone numbers and start making and receiving calls over a broadband connection on the cheap. Sound familiar? Vonage (VG) pioneered the so-called Web-calling service back in 2001. Nearly every cable operator has rolled out similar service since then, to compete with the traditional phone offerings from Verizon (VZ) and AT&T (T). But this may be the first time a pure-play wireless company elected to go the same route in the U.S.

T-Mobile's endgame is not to become a major force in home phone services, where margins and customers are declining. Instead, @Home is about delivering a blow to wireless competitors. With the U.S. wireless market near saturation, service providers now have to grow by stealing customers from each other with sweet prices and sweeter deals. AT&T has been dangling the carrot of being the exclusive U.S. carrier for Apple's (AAPL) popular iPhone. Earlier this year, Verizon Wireless, AT&T and Sprint Nextel (S) unveiled all-you-can-eat wireless plans. Now comes T-Mobile's parrying shot: @Home, which will become available through T-Mobile's retail stores and online on July 2.

Only for Wireless Customers

Offered only to new or existing wireless subscribers, @Home may be an effective way for T-Mobile to safeguard its subscribers from competitors' offers. At $10 a month, the service is half the cost of Vonage's lowest-priced plan and of what Comcast (CMCSA) offers in its latest promotion. T-Mobile's price is also much lower than the $65 a month an average telco phone-line user pays today. The price is so attractive, especially in an economic downturn, that some analysts believe T-Mobile could kick off a new wave of pricing wars in Web calling.

Users who sign a two-year contract with T-Mobile get an @Home Wi-Fi router made by Cisco's (CSCO) Linksys division for a subsidized price of $50. (The price is $150 without a contract.) As most people are apt to go for the subsidized price, "they'll get much greater loyalty from their subscribers," says Charles Golvin, an analyst with consultancy Forrester Research (FORR). "In today's cellular environment, it's all about reducing churn." The plan may also encourage some of T-Mobile's lower-end or prepaid customers to upgrade their plans: The service is available only to individuals paying at least $40 a month and families paying at least $50 a month for their wireless plans.