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Apple Announces FaceTime for iPhone 4 Video Calls
Video calling will require both parties to be using an iPhone 4. Video calls can be done with both the front and rear-facing cameras on the new device and requires Wi-Fi to work. Apple's protocol for video calling is called FaceTime and will apparently not use cellular data networks at all, thus the requirement for a Wi-Fi connection.
While describing the feature and its restriction to Wi-Fi only in 2010, Jobs said that they "need to work a little bit with carriers," presumably to make the feature available with cellular data connections in the future.