Monday, January 28, 2013
How FreedomPop's Free Wireless Internet is Disrupting Telecom
Story by Benjamin F. Kuo
How do you go about trying to completely disrupt the entire telecom industry? If you're FreedomPop, the Encino-based startup, you start by offering up free 4G wireless data access, and then expand to offer free, voice-over-IP services, along with home-based wireless Internet services. No fly by night startup -- the company is backed by the founders of Skype -- we talked with COO Steven Sesar about how FreedomPop can provide free wireless Internet, the firm's expansion plans, and how the company hopes to turn the telecom industry on its head.
First, for people who haven't yet heard about FreedomPop, talk about what the service is all about?
Steven Sesar: FreedomPop is all about bringing the freemium model to the wireless Internet market, and disrupting the telephone companies. We give way 500Mb of free data to all of our users, and users can also early additional, free minutes for connecting to their friends on the platform and participating on partner offers and promotions. We also offer prepaid data access at a 40 to 50 percent discount rate, compared to the rest of the industry. We originally started in the wireless Internet space, and started looking and how to disrupt the entire telecom market, so we're coming out with a voice-over-IP application which allows users to completely cut the cord with their existing carrier. That's both voice and data, through a mobile application, and are also now looking to go into homes. Over the last three months, we've been figuring out the model of wireless Internet, and doing the same thing with broadband Internet access, where we're rolling out and launching a home device with a similar freemium model, but with more data. We'll be offering 1G instead of half a gigabyte of data late this February.
How can you offer this for free--can you explain it to folks who might think it sounds too good to be true?
Steven Sesar: It's no major secret that telcos have been increasing their prices, and basically selling high volume wireless Internet packages to users, with 5GB or 10GB of data, when in reality, users are only using roughly 1.5 GB of data each month. There's massive inefficiency in this category. We believe we're creating a truer model, with a pay-as-you-go component. We offer up 500MB of data for free, and users can then pay as they go, paying a reasonable rate, pay-per-use, versus the rest of the industry. Currently, users pay up front for data packages, and there are inefficiencies in that market. We're able to create some margin off pay-as-you-go. What's critical, is we don't run a network, install antennas, or build up a network. Instead, we have created a very low infrastructure model for our operation. We've only got 40-45 people, versus if you look at a Verizon or AT&T, where they have tens of thousands of people having to support their network and provide customer support. Instead, we use the Internet model. Our customer support is in-house, and we have a light-touch customer support model, and we don't have to manage a massive network. We've got less infrastructure, and we're not having to pay hundreds of dollars for consumer acquisition. Freemium creates a better conversion rate. People aren't having to be sucked into a two year contract, so they're more willing to convert in our model, versus the incumbents out there. We've also built a social layer, as well, to get people to invite their friends. You earn 10Mb in free data for each person you connect to on the platform, which brings down our acquisition costs. So, end to end, we have lower infrastructure costs and consumer acquisition costs, so we can deliver data at a far more reasonable rate than the rest of the industry.
Talk a little bit about your financial backing, which we understand includes the founders of Skype?
Steven Sesar: We've got unbelievable backers. Nikolas Zennstrom of Skype obviously comes to the top, and we not only have Zennstrom through Atomico, but also have Mangrove Capital, which was the seed investor in Skype as well. Both companies actually view what we're doing in the same way they viewed Skype, in that what Skype did for voice we're doing for data. They're fantastic backers. In our Series A, we also took some funding from Dall Capital Partners, and they know telco very well. Their lead partner had previously sold an MVNO in the Japanese market, and has lots of ties to equipment manufacturers overseas.
Can you talk about your move into the home and what the strategy is there?
Steven Sesar: We're looking to apply basically the same model to the home. We're not yet talking about pricing and packages, but the idea is we'll have cheaper rates on prepaid and pay-as-you-go. For our entry-level plan, we believe that $10 a month would give the average user plenty of data for normal, at-home usage. We're not going to be the perfect model for people who are streaming huge amounts of video, and using Netflix all day. But, the other 80 percent of users, who are using email and web surfing, our entry level will be around $10 a month. We're looking to completely revolutionize home Internet. The average user and consumer only consumes 5GB a month, and we think we can provide something massively competitive to both DSL and cable. In my area, I can only get 6 MB download speeds on DSL. We can deliver 10-12MB download speeds, depending on your proximity to various stations and antennas. That peak of 10-12 down is faster than normal DSL, and will be at a fraction of the price. We won't be as cable, but we think 10-12MB is more than sufficient for users to stream video, download email, and for standard Internet action.
What kind of coverage do you have?
Steven Sesar: Today, we're running entirely off of Clearwire's network. We'll be expanding on the Sprint network in the next couple of months. The best thing about or at-home plans, is that if you have coverage, you'll have great coverage, no matter what. It doesn't change over time. Clearwire is currently in 80 markets, and covers 140 million Americans across the U.S. We're not doing a slow rollout, we're doing a nationwide rollout. That will expand over time. The best part of our home product, is you can take out the issues of mobility and coverage issues that occur when you don't have 100 percent blanket coverage. Once you have coverage at home, you'll have it forever more.
Where are you going next with all of this?
Steven Sesar: Where we had started with this, is we wanted to disrupt wireless Internet. We saw that all of the major incumbents were basically charging exorbitant fees on data consumption. At the same time, data consumption was going through the roof with wireless devices. Back in 2011, Lightsquared was making a pretty aggressive position to offer wholesale rates to enable companies like ourselves to do this. That enabled us to test our model, and we then decided to partner with Clearwire, because they already had a live network and we could get to market faster. We started trying to disrupt wireless Internet, and then found we could disrupt the voice communications side as well. That's where the TextPlus relationship comes in, where we now have a voice-over-IP application which provides very low cost, voice through our data-only network. That goal there is also to disrupt voice. We've also got our disruptive devices, our iPod and iPhone device. That combination of application, device, network, and the freemium model gets you an all-in, free voice and data service, which is massively disruptive. Over time, we'll develop our model, and expand our coverage and devices to a point where we can provide access to all devices that need access to the Internet. That's something we think will happen over the next twelve months. We're very excited about where we're going, and hope to completely disrupt the entire space.