Unlicensed Spectrum: Startups Offer Low-Cost WiFi-First Service

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March 3rd, 2015

In my introductory post on unlicensed spectrum I noted that two small startup companies, Republic Wireless and FreedomPop, are making creative use of that spectrum to offer low cost voice and Internet service.

These two companies were the focus of a mid-February article in the New York Times by Brian Chen.  As Chen explains, “FreedomPop and Republic Wireless…offer services that rely primarily on Wi-Fi networks, and in areas without Wi-Fi, customers can pull a signal from regular cell towers.”

FreedomPop, which has 80 employees, offers software that enables smartphones to automatically join Wi-Fi networks…For $5 a month, users can gain access to a network of 10 million Wi-Fi hot spots a month, many of which are normally not open to the public, the company said. FreedomPop’s other low-cost plans use a combination of Wi-Fi hot spots and Sprint’s network. Some basic plans are free.

Republic Wireless…uses a similar approach. For $5 a month, customers can make calls or connect to the Internet solely over Wi-Fi. For $10 a month, they can use both Wi-Fi and a cellular connection from Sprint… Republic Wireless’s parent company, Bandwidth.com, a telecommunications provider with about 400 employees, developed a technique to move calls seamlessly between different Wi-Fi networks and cell towers.

In a Wall Street Journal article (subscription may be required), Ryan Knutson reports that roughly 38% of Republic customers opt for the company’s $10/mo. plan, which provides unlimited voice and text usage via the Sprint network, but uses only WiFi for data.  It also offers several other service tiers, as does FreedomPop, whose “basic” service is free and provides 200 voice minutes, 500 text messages and 500 MB of data per month.

At this point it seems likely that these services appeal mainly to very cost-conscious users with the requisite mix of technical skill, time and patience to deal with the kind of complications, glitches and limitations often associated with new technology-based services launched by modestly capitalized startups.  Some of these adoption issues are enumerated in a “Complete List of Caveats” available on a Republic Wireless Wiki page, as well as this June 2013 Time magazine article, which advises readers to be “keenly aware of [FreedomPop’s] hidden costs and gotchas,” when they consider signing up for the service.

Knutson describes how David Morken, co-founder of Republic Wireless, “set out to create a cheaper alternative to carriers once he realized he couldn’t afford to pay the cellphone bills for his six children.”

Knutson also points to another company, Scratch Wireless, which employs a somewhat different version of the WiFi-first model.  It offers a free WiFi-based service that includes unlimited voice, texting and data.  When outside WiFi coverage areas, texting is still free, and voice and data service delivered via the Sprint network can be purchased on a daily or monthly basis.   Daily passes for unlimited voice or data cost $1.99 each, and the company offers monthly “passes” with either capped or unlimited use.  To use the Scratch service, customers need to purchase a $99 Motorola Android smartphone.

As the following promotional video suggests, Scratch’s primary target audience appears to be the same cost-conscious millennials that comprise the largest share of cable TV “cord-cutters” and “cord-nevers.”  According to the video, Scratch believes “wireless should be free.  Why?  Because it can be.”

Chen describes Republic and FreedomPop as “tiny,” with “customers…in the hundreds of thousands,” a small fraction of the more than 100 million served by both Verizon and AT&T.   But, according to Knutson, Republic, which “has several hundred thousand subscribers,…is growing by about 14% a month.”

Chen highlights a key point, that both Republic and FreedomPop claim to be profitable, even with their very low prices and modest suscriber bases.

This ability to profitably deliver voice and Internet service at price points in the $5-$20/month range highlights the potentially disruptive nature of  a “WiFi-first, cellular-second” business model.

Though these small startups may never expand to the point where they have major impacts on wireless industry dynamics, such impacts may nevertheless be on the horizon, as firms with more substantial resources and market positions also seek to leverage the cost-savings and other benefits of unlicensed spectrum.  These companies and their plans will be the focus of future posts in this series.

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