Summary:

Business 2.0: Since they use VOIP, they’re a lot cheaper than cell phones — but they only work in hotspots. (Also read my review of ZyXEL WiFi phone.) It was just a matter of time before someone found a way to combine the two hottest technologies […]

Business 2.0: Since they use VOIP, they’re a lot cheaper than cell phones — but they only work in hotspots. (Also read my review of ZyXEL WiFi phone.)

It was just a matter of time before someone found a way to combine the two hottest technologies around — voice-over-Internet protocol and Wi-Fi — into a killer app: the Wi-Fi phone. By the end of this year, we’ll see a dozen such devices on the market, according to Texas Instruments (TXN), the Dallas company behind 80 percent of the VOIP chips now available. Priced at or below $200 a pop, they’re sure to be the most-wanted geek gift of the holiday season.

Wi-Fi phones have a couple of big advantages over cell phones. First, they can be used anywhere in the world that there’s a Wi-Fi hotspot — and those are proliferating like crazy. Second, the cost is unbeatable. AT&T (T), Vonage, and other VOIP service providers have recently started offering unlimited-use calling plans for as little as $30 a month. A call from downtown Delhi to San Francisco costs about $3 a minute. With a Wi-Fi phone, it’s almost free. Hard to beat that.

I recently tested one of the first handsets on the market, the ZyXel Prestige 2000, and it works fine. The biggest drawback is that it’s a bit of a chore to set up — configuring it took more than an hour. But I suspect that most VOIP companies will start selling pre-configured phones by year’s end.

The only real limit on these phones is that Wi-Fi isn’t as widely available as cellular service. At the moment, most hotspots are located in densely populated locations. You can find a cell-phone signal pretty much anywhere nowadays, while hotspots are harder to come by. There are only 44,000 or so hotspots in 65 countries.

When Wi-Fi coverage spreads, though, cellular will have to find a way to answer back.

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