Producing Static for the Competition

By Mark Halper/London

George Polk has rattled cell-phone carriers once before. The American, 42, runs a network of wi-fi hot spots called the Cloud that allows laptop and gadget users to surf the Web for around $8.50 an hour or $17 a month at 7,500 cafes, hotels, pubs, airports and other public places in Britain, Germany and Sweden. That's a service that cell-phone companies like Vodafone and Orange are struggling to sell via their 3G mobile-phone networks. Wi-fi, which uses low-cost, wireless Internet connections, has stolen some of the thunder. "I wanted to build a broadband wireless business for the last 10 years, and when wi-fi came around four years ago," says Polk--whose varied experience includes running the Latin American unit of Global Wireless holdings, a company backed by investor George Soros--"[wi-fi] looked like it would do it."

It did. Now he's warming up for his next disruptive act, hitting mobile operators where they really hurt: in the voice business. Polk is prodding consumers and businesses to make cheap Internet-based VOIP (voice over Internet protocol) phone calls through the Cloud's hot spots. VOIP has already eaten into the traditional fixed-line business. It's now poised to do the same thing to mobile operators, threatening to take a chunk of what London research firm Informa Telecoms & Media says will be a $550 billion mobile-voice business by 2010. Polk volleyed in July, when he partnered with VOIP champion Skype (now part of eBay) to allow Skype software users to call anywhere from hot spots through headset-equipped laptops. If just some of Skype's 66 million registered users connect via the Cloud instead of a mobile network, mobile operators will lose revenue. The Cloud could siphon off even more mobile dollars next year when handset giants Nokia and Motorola start selling dual-mode phones that let users call via the Net or mobile networks, without Skype's software.

Polk is outfitting hot spots to handle the wi-fi function of those phones, forcing the hand of mobile carriers. "If they don't embrace these things, they'll lose the game," he says. That's a peace offering wrapped in a warning. He could take them head on, but he would gladly partner with mobile operators as the behind-the-scenes technology provider, wrangling wi-fi phone traffic that a mobile-phone company would front. Next up: the games and entertainment sector. In November, Polk struck a deal with Nintendo that lets owners of the wi-fi-- equipped Nintendo DS game machine play networked games for free at the Cloud's hot spots. Guess whose business stands to get disintermediated? Forecast for the mobile-phone industry: partly Cloudy.