Sky Dayton opened up his laptop in the hired Lincoln Town Car. As we cruised up 10th Avenue in Manhattan back towards FORTUNE's offices after our lunch, he used wireless networking software to immediately find 15 Wi-Fi networks, which could have connected his PC to the Internet (had we not been driving so fast). Dayton, CEO of SK-Earthlink, a new wireless carrier, was underscoring a point he’d made earlier during our visit: The growing ubiquity of Wi-Fi networks around the world is clearing the way for more flexible mobile phone service which incorporates the Internet.

Dayton made the point to explain why he thinks there’s so much growth opportunity for SK-Earthlink, a joint venture between Earthlink, the U.S. Internet service provider he founded in 1994, and SK Telecom, South Korea’s largest wireless operator (with over 50% market share). While the $440 million venture has gotten its share of buzz since its announcement in January, Dayton revealed details to me about features that will be available on his company's phones, especially ones that will make it easy for customers to seamlessly switch back and forth between cellular and Wi-Fi networks. Dayton convinced me that this could be a landscape-altering service once it launches in the first quarter of next year. (The company will announce the service's brand name at that time.)

For starters, SK-Earthlink intends to sell, for the first time, many of South Korea’s state-of-the-art wireless phones and applications in the U.S. Using not only cellphone networks, but also Wi-Fi ones, should allow you to get the cheapest, fastest connection anywhere you go. If you’re in a Wi-Fi hotspot you could make free, or almost free, voice calls and data connections around the world over the Internet—and they wouldn’t count against your monthly minutes. SK-Earthlink will offer Wi-Fi access as part of its service. “I’ve always thought a big change was coming in wireless as Wi-Fi and the huge cellular networks came together in a single device," says Dayton, a serial entrepreneur who also founded Boingo Wireless, which gives customers access to 15,000 hotspots worldwide, in 2001.

Some have seen this industry disruption coming for a while. (See the column I wrote about this two years ago, “Will Wi-Fi Revolutionize the Phone?”) A few dual-mode Wi-Fi cellphones already are in use in corporations, and they also are starting to become available around the world. But the main thing that’s been holding up dual-mode cellular/Wi-Fi phones in the U.S. has been the reluctance of cellphone carriers to offer them. And it's hard to blame Verizon, Cingular, and Sprint, which have invested billions in their cellular infrastructure, for not making dual-mode phones available. Who could expect them to be enthusiastic about purveying devices that enable customers to bypass all that costly stuff to make free calls?

But for SK-Earthlink, Dayton says: “Wi-Fi is nothing but opportunity, because we don’t own a network.” The new service will be what’s called a Mobile Virtual Network Operator, riding on top of other carriers' infrastructure. Virgin Mobile is the best-known MVNO in the U.S. The networks SK-Earthlink will rent from Verizon and Sprint will be the newest, so-called EvDO (which stands for either Evolution Data Only or Evolution Data Optimized, depending on whom you ask) broadband systems. Also known as 3G networks, they enable customers to get data signals over a wireless phone at speeds that approach what you might get from a cable modem or DSL connection.

3G networks, which are just being rolled out in the U.S., will finally enable Americans to join in the wireless revolution. Many of us don’t realize how far behind we are. In SK’s home market of South Korea, for instance, making a voice call is just one of many things you can do with your wireless device. It’s routine to watch TV; play sophisticated, complex multi-player games; listen to music; and find out the physical location of your friends—all with your “phone.” Dayton claims that SK-Earthlink will aggressively deliver such capabilities in the U.S.

All the handsets and back-end systems will come from SK, Dayton says. Look for phones with unusually good cameras, higher-resolution screens, and enough memory capability to store lots of MP3 music. Such capabilities are already common in SK’s home market. “SK spends over a billion a year on R&D, and we have an exclusive on all of that in the U.S,” says Dayton.

SK-Earthlink's new wireless service will be more expensive than today’s voice-centric cellphone services, but Dayton expects people will be willing to pay for all the new features, which will allow them to use their phones much more often. He plans to market it to “young, tech-savvy” customers. He says offering a service that isn’t for everybody marks the next stage in the wireless industry’s evolution. The SK-Earthlink business plan projects three million customers and revenues of $2 billion by 2009. “Today there’s almost no market segmentation,” he explains. “Soccer moms, seniors, kids, and businesspeople are all being marketed to in a cellphone store under the same brand. If Sprint and Verizon are like Ford and GM, then think of us as the Mini.”

While SK-Earthlink's Wi-Fi dual-mode feature won’t be available immediately, it will come very shortly after the service launches next year, promises Dayton. But integrating 3G and Wi-Fi may be only the beginning for SK-Earthlink and the industry. “There will be more and more networks,” he says, during our lunch. “Here in this restaurant we have Wi-Fi signals, regular and 3G cellphone signals, satellite signals, and TV and radio. Soon you’ll also have Wi-Max [the longer-distance cousin of Wi-Fi]. The magic is if you can put them all on the same device.”

It won’t take magic to create a service better than the white-bread cellular one that’s currently available in the U.S.—just initiative. And I’m glad SK-Earthlink is taking up the challenge


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