Startup Challenges Phone Companies With Free Data Plan
How much do you pay for your cellphone data plan?
If you feel like too much, Stephen Stokols may have the answers. He has founded a start-up that aims to lower those painfully high cellphone bills by providing a free alternative to pricey mobile data plans.
FreedomPop, backed by Niklas Zennstrom, the co-founder of Skype, will provide users with 500 free megabytes of wireless data per month. If more data is needed the company will provide an additional gigabyte for $10, or five gigabytes for $35 — rates that are still 30 to 40% below current market price.
FreedomPop, which is available as a portable wireless hotspot or as a sleeve that wraps around an iPod Touch or iPhone (AAPL), will be a "freemium" product. Much like Spotify or Skype, FreedomPop will create revenue by charging for add-on features.
Although FreedomPop is still in beta, Mr. Stokols has big plans for the future, and a lot of investors are betting on those plans. FreedomPop received $7.5 million in capital in its first round of funding.
"We're really looking to do what Skype did but on an even bigger scale," says Stokols. "The market's massive. It's $100 billion for mobile Internet alone next year."
AT&T (T) and Verizon (VZ) have dominated the wireless data world for years, with margins reaching 50 to 70%, according to Mr. Stokols. FreedomPop plans on challenging the landscape of the contemporary mobile world.
"We're looking at the industry which is pretty much controlled by a couple of main big, huge players and we're looking to approach and attack that industry from a completely different perspective," Stokols says. "We're looking to come in here and disrupt these huge margins that these big guys enjoy here because they have no competition."
FreedomPop is currently broadcasting through Clearwire (CLWR) WiMax network, a limited network only available to about one-third of the U.S. population. Starting next year, however, FreedomPop will partner with Sprint (S) and broadcast over their LTE network. Sprint, which has about half the market share of AT&T and Verizon, sees FreedomPop as a way to gain customers from other carriers.
FreedomPop may very well change the way we pay for data in the United States, but it's important to remember that there's no such thing as a free lunch.
FreedomPop's coverage areas are lacking and even when they switch to the Sprint LGE network next year, 4G service won't be available everywhere. The packaging is clunky and not yet compatible with most phones. Canceling a wireless data plan may be complicated and come with fees steep enough to render the whole venture moot.
Mr. Stokols is aware of FreedomPop's current limitations but is still hopeful for the future of his device.
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