The New Breed Of Wireless Carrier

A new breed of mobile phone providers is causing a shake-up in the wireless marketplace. These new companies are called MVNO’s, an acronym for mobile virtual network operators. They are different from the traditional carriers in that they do not own any of the towers, switching equipment, or other infrastructure necessary to run a wireless network. Instead, these companies purchase network capacity in bulk from traditional carriers at wholesale prices. Unburdened with the heavy capital investment required, MVNO’s can sell their services at lower prices to the public.

One of the MVNO’s that is making a statement in the marketplace is FreedomPop, a company based out of Los Angeles, California but provides nationwide access over Clearwire and Sprint’s existing network. FreedomPop allows its customers to use up to 200 minutes of voice, send and receive 500 text messages and download 500MB of data every month for free. Additional minutes, messages and data are billed per minute or megabyte. The company recently announced unlimited access to over 10 million WiFi hotspots for $5 a month.

Giving away free service is part of the new economy. In order to have a revenue stream, FreedomPop offers its customers a range of additional services priced from $3 to $10 per month. The company reports that the average customer spends about $7 per month on these services like unlimited data and voice plans, device insurance, and international calling plans. The company expects to enroll its millionth customer by the end of the summer and will expand to offer services in the United Kingdom by the end of the year.

The company also sells a line of mostly refurbished devices (typically a Samsung or HTC handset) as an additional source of revenue. The network supports iPhones, LTE Android devices and recently FreedomPop added some tablet devices. Compatible Sprint phones can be converted to the FreedomPop network also.

Still the company has razor thin margins that its protects by keeping its overhead expenses as low as possible. Customer acquisition costs are practically non-existent since the company relies on word of mouth marketing.

FreedomPop was founded in 2011 by its CEO Stephen Stokols and Steven Sesar. Stokols came to FreedomPop from Woo Media, a video-chat and entertainment startup. Funding for FreedomPop has come from several firms including Mangrove Capital, Doll Capital, and Partech Ventures. To date, venture funding has topped $59 million in its four-year history.

Several companies have approached FreedomPop as a possible acquisition target, including Sprint. After analyzing the deal from a reported six bidders, one having entered into exclusive negotiations, FreedomPop’s management decided not to sell the company but to increase its subscriber base further increasing the value of the company to any future buyers.

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