Back in February 2008, I bought an original first generation iPhone and it was a fantastic improvement over the “dumb phone” I was currently using. Before then, I had no good mobile solution for email, calendars, photos, maps, weather and most of the other applications that the original iPhone brought to the table. Needless to say, I was a very happy person.

I passed on the iPhone 3G and 3Gs however, because I was locked into a contract with the original iPhone, and I didn’t see the benefit of getting a new device just for the cool, yet limited number of new features. With the iPhone4, however, I was tempted. My 2-year deal with AT&T was up, and the backlog of features that I was missing out on was quite long. Again, though, I wasn’t totally sold. The iPhone 4 looked very fragile and within days of the launch there were umpteen videos and photos showing smashed iPhone 4s. I quite liked the brushed aluminum look of the original iPhone and the iPhone 4 edges felt rather sharp. Finally, was I ready for another 2-year commitment to a rather painful AT&T network? I wasn’t sure.

I’m glad I gave it some time. Late this summer, the stars aligned perfectly for the first time to build an functional, working phone out of a 4th generation iPod Touch with basically the equivalent features of an iPhone 4, but cheaper with no commitment. You heard me. Cheaper with no commitment. Let me tell you how I did it.

The Virgin Mobile MiFi

Virgin Mobile began offering their version of the Novatel MiFi 2200 back in July, which is basically a mobile 3G antenna that can broadcast a WiFi signal that up to 5 devices can connect to.  David Pouge wrote about the virtues of the Virgin Mobile version of the MiFi, the short of which is that you can get unlimited 3G quality data delivered for $40 a month and there is no contract. There’s also a plan that provides 100MB for $10 for a 10 day window. The 3G connectivity that this device provides, coupled with the WiFi avialable at my home and office, is more than enough bandwidth to allow a WiFi enabled device, like the iPod Touch, to make VOIP calls. The inexpensive MiFi is really the main building block that allows for the other pieces to fit together.

The 4th Generation iPod Touch

The 4th Generation iPod Touch also brought some new features to the table that enabled it to used as a VOIP phone very easily. This is nothing new, as many people have hacked their older iPod Touches to make voice calls over services like Skype, but what’s is new is how easy it is now. Most importantly, the new iPod Touch now includes a microphone for Facetime that the 3rd-gen. device didn’t have. Another nice feature, but not brand new, has to do with multi-tasking – the Skype application can now run in the background and notify you of incoming Skype calls. But really, the microphone is the big deal here.

Skype + The Skype iPhone/iPod Touch App

Of course, Skype and the Skype application for the iPod Touch have both been around for a while, but there are some new wrinkles that make this particular solution possible. First, the Skype subscriptions for unlimited calls to mobile phones and landlines are really cheap. Unlimited talk time to any phone in the US and Canada is $3 a month. Even the 40 country plan is only $14 a month and that’s a steal if you have family or friends in one of these countries.

Next, getting you own Skype number, which you’ll need for folks to be able to call your Skype account, is only $30 a year if you already have a subscription. Unless you’re using Google Voice, which I’ll describe next, this is the number your friends, family and colleages will call, and when they do, it will magically ring your iPod touch as long as you have the Skype app running. With the multitasking, all you have to do is open up Skype once on the iPod Touch and it’ll be running in the background. This really works. Really. I’m not kidding.

Google Voice

Finally, there’s Google Voice – the old GrandCentral – that has also implemented a few new features recently that make all this possible. First, you can now add a Skype account to your Google Voice number, which wasn’t possible until recently. It’s as easy as adding the Skype number you just purchased above to your Google Voice number in Settings > Phones. Google will call the Skype number and prompt you to enter a two digit verification code, just like any other phone you’ve added to your GV account.You can also now set your Google Voice number to show up in your friend’s/family’s/colleagues’ caller IDs by going into your Skype account and entering your GV number in the caller ID section.

For text messages, Google Voice is where it’s at. There’s no Google Voice app (yet!) for the iPhone/iPod Touch, but until there is, the web application is very good. Of course, it’s great for voicemail and transcription among other things, but it incredibly sends and receives text messages for free. Ok , so it’s been doing that for a long time, but it still makes my blood boil that cell companies charge for text messages when it’s essentially free for them to provide them. Anything that undermines that unearned revenue stream I’m all for.

In terms of text message notification, there’s an easy workaround for that. Set up your email for push notifications (Gmail users can also do this without resorting to the Google mobile app) and then set up GV to forward text messages to your email account. The iPod Touch will notify you every time you have a new email, and you can check your email account to see if you’ve gotten any incoming text messages. I know it’s not an ideal solution, but Apple has made some noise that they might approve the official Google Voice app, which could allow push notifications of incoming text messages.

Costs

I said before that this will save you money, and here’s the math to prove it. An 8GB iPhone4 costs $200 with a 2-year AT&T contract. The absolute cheapest AT&T rate plan with (450 minutes, 150MB of data, 200 text messages) will cost you $60 a month.  That’s $60 x 24 months or $1,440 over the course of the 2 year contract. Add in the cost of the phone and the grand total for the cheapest possible iPhone4 is $1,640.

Adding up the cost for the iPod Touch “phone” combo is a little bit more complicated, so bear with me. In terms of fixed, device costs, the iPod Touch costs $300 and the Virgin Moile MiFi costs $150. Again, unlimited 3G service for the Virgin Mobile MiFi is $40/month. Unlimited Skype minutes cost $3/month and the Skype phone number costs $30/year. All the Google services are free. So, the grand total for this set up is: $300 + $150 + ($40 x 24) + ($3 x 24) + ($30 x 2) = $1,542.

Now I know what you’re saying – that’s not saving all that much money. However, consider that most iPhone4 users have the mid-range 900 minute a month plan (w/ data and test messages, about $80/month or $2,120 for the life of the two year contract), or the high end plan (unlimited minutes; about $90/month or $2,360 for the life of the two year contract) and you can see how the cost savings can really be quite substantial. Also remember that many iPhone4 users have larger data and text message plans, which also raise the monthly cost. It’s possible to envision cost scenarios where this might save someone $1,000 over the two year deal!

Outstanding Issues

• As noted above, the official Google Voice app – if it includes push notifications for text messages – will solve the needed workaround with push email to receive text messages in real-time. GV Mobile +, a third party app that interfaces with Google Voice claims it will have push notifications shortly, which could solve the problem.
• The Skype App, as it has always been, is a horrible battery hog. This is mostly true when one is on a call, but it does also reduces the battery life when running in the background. As many, many users have pointed out, this is really unacceptable, and no one can say for sure if or when Skype will fix this issue.
• This is not an emergency phone. Thankfully, you can keep an old cell phone in the glove box of you car (or other places you might need an emergency phone) and if it’s juiced up, you can call 911 without having any cell plan.
• Finally, the iPod Touch won’t work with the built-in microphone on your iPhone headphones. Only the microphone at the base of the iPod Tuch will work, so you’ll have to keep your iPod Touch out of your pocket when you’re on a call. You can use the iPod Touch with the speakerphone setting on Skype, but it’s much easier with headphones to hear the person on the other line. The iPod Touch, as with all models of the iPhone, has a rather low speakerphone volume.

There you have it. With a little up-front investment and a bit of set up, you too can have a iPod Touch “phone” and pay much less than the equivalent iPhone4 user. Not only that, but you’ll have 99% of the iPhone4′s other features (yeah, I know, it doesn’t have a camera flash) along with a cheaper phone. Maybe $1,000 cheaper!

Thanks to @clowerpower for originally helping me think through this idea, and both him and @rhjr for encouraging me to post on this. Finally, thanks to @cohootsphx for being the awesome place where we all co-work.