If you were trying to disrupt the cell phone industry, you couldn’t do much better than pairing a company that provides free Internet access with an app maker that has a popular free texting and calling app.
That’s the thinking behind the recently announced collaboration between West Los Angeles’ FreedomPop Inc. and TextPlus Inc. in Marina del Rey.
FreedomPop has been offering free Internet access through laptops and mobile devices by allowing users to tap into a mobile network. TextPlus’ app allows users to text and call for free through Wi-Fi hotspots without running up data charges from cell service providers.
FreedomPlus, the result of their collaboration, is a service that brings the TextPlus features to people on FreedomPop’s cell network. It’s scheduled to be launched in the next few months and designed to turn any mobile device into, essentially, a fully functioning cell phone.
“One of the things that TextPlus does so well is turn a connected device into a phone. We wanted to use it outside of Wi-Fi as well.” said Scott Lahman, chief executive at TextPlus, which he co-founded with Zach Norman.
FreedomPop uses 4G bandwidth supplied under a contract with Clearwire Corp. in Bellevue, Wash. (FreedomPop is in the process of switching to Sprint’s network.) To access the network, people need to use a special wireless hotspot that FreedomPop gives away with a deposit; iPod and iPhone users can slip a plastic sleeve over the device that works as a 4G connection.
Once people are hooked up they can launch the FreedomPlus app, which lets them choose a phone number then make calls and send texts. The companies haven’t yet figured out the specifics of the plan, but the cheapest monthly option of $3.99 will allot a limited number of voice minutes and texts, while the top-tier plan will be $14.99 a month and should give nearly unlimited service. Customers will also get FreedomPop’s 500 megabytes of free data each month.
In a market where people routinely pay upwards of $40 a month for cell phone access, these prices are designed to strike a blow against telecom giants such as Verizon Communications Corp. and AT&T Inc.
“We’ve been focused on disrupting telecom,” said Stephen Stokols, FreedomPop’s chief executive. “With the work that we’re laying right now, we’ll give people a strong foundation to cut out the big carriers.”
Even though the bulk of both FreedomPop and TextPlus’ existing customers take advantage of the bottom scraping rates, the real money for the two, both in their existing businesses and their joint venture, comes from those who pay for upgrades. Stokols conceded that FreedomPop loses money on some users; even though the data is free, FreedomPop has to purchase the bandwidth from the cell networks wholesale. However, 30 percent of its subscribers pay for upgraded services, such as a higher monthly allotment of data.
TextPlus has a similar business model, and its revenue is supplemented through ad sales on its free app. Neither FreedomPop nor TextPlus disclosed revenue.
Both companies are hoping that the freemium model, with limited free services underwritten by paying users, will work for FreedomPlus as well, with users opting for the higher priced plans.
Elizabeth Fife, associate director of the Institute for Communications Technology Management at USC’s Marshall School of Business, thinks the bigger problem for the cheap cell phone service could be convincing people to abandon current plans.
“Once people are locked into a cell phone contract it takes a lot of work for them to consider other possibilities,” Fife said. “The typical subscription model is still pretty solid because many people would rather go with the flow.”
Even though FreedomPop and TextPlus have been trying to change that mentality, executives admit not everyone is going to abandon their mobile plans at the first opportunity.
And the service they’re providing doesn’t necessarily mean the cell companies will be losing customers. Many people who use FreedomPlus on a tablet or iPod touch may also be cell phone customers.
What this service does allow, however, is for people to offload some of the texting and calling they would do on a cell phone onto another device and perhaps downgrade to a cheaper plan on their mobile carrier.
“A lot of our core users are iPad and iPod users,” Stokols said. “This gives them a viable voice option without paying the $40 a month.”
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