David Morken is on a mission to lower Americans' cell-phone bills. He's the co-founder and CEO of Bandwidth.com, a $120 million company based in Raleigh, North Carolina, that provides VoIP services to businesses. Bandwidth.com recently launched its own mobile-phone company, Republic Wireless, with a deal that sounds almost too good to be true: unlimited calling, texting, and data--all for just $19 a month.

Morken can afford to keep the price low, because the calls and data are transmitted primarily via Wi-Fi. When Wi-Fi isn't available, the phone uses the Sprint cellular network at no additional charge.

Morken started thinking about ways to lower mobile-phone costs after his family's AT&T bill reached nearly $1,000 a month. (He had been bribing his six children with iPhones in exchange for straight A's.) Why couldn't calls be mostly transmitted over Wi-Fi, he wondered, something most people already had at work and at home?

Morken rolled out the service to the public four months ago after about a year of beta testing. Republic Wireless has 50,000 customers and expects that number to double by the end of 2013. "Republic Wireless is potentially one of the worst nightmares for telecom providers," says Andrew Borg, an industry analyst at Aberdeen Group, a Boston-based market research firm.

To use the service, most customers simply set up their phones to automatically connect to their Wi-Fi networks at home and at work. Then they just dial as usual. The phone can detect when the Wi-Fi signal is strong enough to support a phone call. If it isn't, the phone uses Sprint's network. Morken says the average customer uses Wi-Fi more than 60 percent of the time.

The service does have a few big drawbacks. For starters, you can use only one phone: the Motorola Defy XT, a small smartphone with a 3.7-inch screen, which operates on an older version of Android. The phone, which is optimized for Wi-Fi, costs $249, plus a $10 activation fee (or just $99, if customers agree to pay an extra $10 a month for service). Second, calls have been known to drop when a customer leaves an area with Wi-Fi and the phone switches to the Sprint network. Plus, Republic Wireless lacks a customer service hotline. Subscribers may email the company or submit an online ticket, but they are encouraged to solve one another's problems by using the company's message boards.

If Republic Wireless wants to make a dent in the market, it must address some of those problems, says Borg: "Geeks and early adopters are attracted to Republic Wireless both for the price and for the opportunity to stick it to the Man. But going forward, Republic Wireless must make the user experience a bit more seamless: fewer dropped calls, at least one device with a larger screen, and the current version of Android. With that in place, it's poised to potentially disrupt the telecom world."

Morken says he's working on it. This summer, he plans to introduce three new phones for his service--"good, better, and best" options. The Defy XT won't be one of them, but the "better" phone will be on a par with that device. Morken won't reveal the brands or models but says the "best" phone will have a larger screen and be a "hero device" equivalent to a Samsung Galaxy. All three phones will operate on the latest version of Android.

The new phones will also include a software update that will prevent call dropping when customers step out of Wi-Fi range, says Morken: "In the moment the call would drop, we anchor it in the cloud and keep the call up. There's a delay but no drop. I know it sounds like black magic." Morken muses that his technology might even fix the industrywide problem of cellular calls dropping as drivers pass between cellular towers. "Nobody ever thought Republic Wireless would improve cellular itself," he says.


Cellular service, by the numbers

87 percent: Share of American adults who have cell phones. About half of those are smartphones.

61 percent: Portion of American households that have Wi-Fi

$71: The average individual's monthly wireless bill (across all phone plans), including taxes and fees

$19: What Republic Wireless charges for unlimited calling, texting, and data. Taxes and fees add another $3 or so.