Even while using a hands-free while driving, a mobile phone is extremely distracting, mainly because, in contrast to having a chat with a co-passenger, the person on the other end of the line does not know your mood, your traffic situation, or the dangers lurking in front of you, and is usually on a totally different frequency.
My suggestion is to have a mobile phone with a slideable camera, and a foldable LCD screen, so that while talking, the hands-free camera or the mobile camera can slide to the side of the phone, making it the third eye for the person on the other end of the line. The one on the other line in turn should have a foldable LCD monitor that projects in front of his eye, to see the environment around the person whom he's talking to.
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The capability of the driver to coordinate his driving with a screen and conversation is probably way beyond the capability of an average driver. This looks to me like an open invitation to road chaos.
I don't see what problem this is intended to solve.
Please note that the driver will not be watching any screen. This is optional, if he is not occupied. The camera on the side of the phone automatically focusses on the environment ahead, to give the calling party an idea of the environment ahead.
The issue with driving and cellphones has nothing to do with hands free usage or anything else. It has to do with your ability to switch between two tasks that utilize the same region of the brain. This ability is poor, in everyone. So, no matter what you try to do, when you are on a cellphone, that has priority. You will forever be condemned to horrible reaction time and similar driving characteristics to a drunk driver. Someone who claims they can drive well while they talk on a cell phone? Ever meet someone who claims they drive well while drunk (.08 BAC)? They've both got identical reaction times and driving ability. They both have a impared driving ability, they just don't swerve around and alert other drivers to the danger.
With a passenger in the car, for whatever reason, this does not tend to happen. The driver is far more likely to pay attention to driving and miss things the passenger says.
However, to directly reply to your comment:
It would probably sell well amongst luxury car owners. Just like hands-free sells very well among the same crowd. It won't improve the situation at all, but you'll get their money.
My only point to make here, is that it would help to have a person on the other end of the line knowing the environment around the driver. If he is conscientious, he will be sensitive to the driving environment, and try to blend with the circumstances, rather than be on a completely different mood level and environment level from that of the driver
I think it is too expensive given current technology, but there might be less expensive techniques that might help.