The Almost-Free Cellphone

FreedomPop offers modest cellular voice, data plans for free

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Steven Cherry: Hi, this is Steven Cherry for IEEE Spectrum’s “Techwise Conversations.”

Back in the mid-2000s, Sprint, the No. 3 cellular provider in the U.S., had a plan. It was going to rebuild its entire network using a new protocol called WiMax. It was basically going to get out of the telephony business and sell data usage. Voice calls would be handled as voice over IP, and subscribers charged by the megabyte.

The network would be open to all comers, and Sprint fantasized about companies like Panasonic building cameras that would upload directly photos to Flickr and Facebook and come with a free month’s worth of usage on the Sprint network.

Well, cameras ended up with built-in Wi-Fi instead, but the all-IP cellular network is becoming a reality, as every carrier, including Sprint, is upgrading to the reigning 4G standard, LTE. And one phone service, called FreedomPop, is offering limited voice and data subscriptions for free, piggybacking on Sprint’s network.

It’s sort of the shareware version of a phone company. The basic level of service is free, and a bunch of different upgrades—faster speeds, more phone calls, more data, rollover of unused data, and more—are available for a few dollars each per month.

My guest today is FreedomPop’s CEO, Stephen Stokols. Previously, he was CEO of WooMe, a startup that was acquired in late 2011, and before that, he was in charge of creating unconventional business models at two conventional phone companies, Qwest and British Telecom. He joins us, of course, by a FreedomPop phone.

Stephen, welcome to the podcast.

Stephen Stokols: Hey, glad to be here.

Steven Cherry: Is the description of a shareware version of a phone company accurate?

Stephen Stokols: It’s pretty close. I mean, we like to think of ourselves as a Dropbox more so than shareware, but same difference, yeah.

Steven Cherry: Very good. Well, let’s start with the free plan. What do you get for free?

Stephen Stokols: So we basically tried to give about US $30 to $40 of value for free and enough that you can actually get by for free. So on the data, it’s a half a gig, unlimited text, and 200 voice minutes. On the market, that would cost you about 30 to 40 bucks.

Steven Cherry: I understand that almost half of your customers upgrade to a plan where they’re paying something. What are the most popular add-ons?

Stephen Stokols: We launched about seven or eight months ago, data only, so hot spots, and we sort of needed to test the business model of data-only hot spots before moving into phones, which has always been the endgame. And so on the hot spot model, we have a lot of data we can look at, and so we know that about half our customers actually end up paying for either upgraded plans, so we give away a half gig free. So we have a lot of customers that might take a 2-gig plan or a 4-gig plan as well as the value-added services that we’ve sort of offered. And we have sort of a whole portfolio of them that we continue to build out, but some of the more popular ones might be a VPN service, or a data rollover, you know, 4 bucks a month to roll over your unused data. We have online security—basically all kinds of services are tied back into the core data business.

Steven Cherry: Yeah, you’ve a lot of devices that the FreedomPop service will work on, including refurbished Android phones.

Stephen Stokols: Yeah, so basically we’re in the process of aggregating or buying a refurbished market of about 30 000 HTC Evos and Samsung Galaxy IIs, among some other handsets, so we can offer like-new Android handsets for 99 bucks, basically. By hitting the refurbished market, that allows us to do that versus having to subsidize the phone.

Steven Cherry: You have a way of using an iPod Touch—this is actually what I saw at the Consumer Electronics Show in January. The Touch is basically an iPhone without the telephony.

Stephen Stokols: Yeah, so the iPod is just a Wi-Fi–only device. You snap on a FreedomPop case, which is a cellular—it’s actually a little case that was designed to feel like an iPhone 3—so you snap it on your iPod, feels like an iPhone, and that case actually gives you 4G anywhere. So basically you take a Wi-Fi–only device and give it 4G everywhere and free. Put a VoIP app on there, you can start making calls, it’s basically an iPhone.

Steven Cherry: Now, there’s also something called the “Overdrive.” What is that?

Stephen Stokols: So the Overdrive is just our base hot spot. It’s a 4G-3G hot spot, it’s WiMax, and it’s 3G, so it’s nationwide coverage with very few gaps, and that’s our base hot spot. It sits in the palm of your hand. It gives you pretty good speeds wherever you’re at. And it sort of just makes sure you’re connected anywhere you’re at with high-speed broadband.

Steven Cherry: FreedomPop is involved in an initiative called “Connect to Compete.” This is an organization that wants to bridge the low-income digital divide. What’s your part in that?

Stephen Stokols: Yeah, so FreedomPop, we have a premise that’s all over our office. It’s sort of a tenet that we’re founded on that the Internet is a right, not a privilege, and we believe that it is. If you don’t have the Internet, you’re at a major disadvantage. Connect to Compete believes the same thing, except they’re coming at it from a not-for-profit angle, however. They spun out of the FCC—pet project of the outgoing chairman there—and now they’re a pretty full-fledged not-for-profit that’s mandate is to sort of bridge the digital divide and get the 100 million people that are not connected, connected.

They looked at FreedomPop and saw a private solution to this public problem, so rather than having to rely on ongoing government funding and not-for-profit charitable fundraising, they look at FreedomPop and say, “If we can use your solution to actually help bridge the divide, it makes them more powerful.” And that’s exactly what we’ve done. We’ve partnered with them, offered them special access and special deals for the underserved communities, where they can sort of go in, leverage our model, and really proliferate our connectivity without having to go through rigid qualifications on all sorts of things that sort of limit the ability to connect people when you’re going through a government program.

Steven Cherry: Your previous start-up, WooMe, was acquired in late 2011. I guess it was sort of an online speed-dating site. TechCrunch called the company “lowly scammers” because you could sign up for free, but then you’d get a lot of messages that you could only read if you subscribe.

Stephen Stokols: Yeah, that’s true. I mean, it’s true that TechCrunch had a bad article on us. There’s also 50 other positive articles on us, but WooMe was basically interactive video plays. It was a subsidy of a parent company, Woo Media, which had about eight different properties, WooMe being one. And WooMe was actually very popular. We had over 10 million users, [and] they generated a lot of revenue.

It was a speed-dating site, as you said, and like most dating sites, you sign up for free, and if you want to start connecting with members, you upgrade. It’s the same model of Match, basically kind of ripped off, the traditional dating model, where,, if you want to read a message you’ve got to basically pay for it, etc. So that was a pretty popular property. Like I said, it blew up organically. Woo Media had additional properties, everything from sort of the consumer focus to a small business property, where small businesses could do collaborative interactive video via Web browser as well. But, yeah, ultimately the company was sold in 2011 and WooMe, which was sort of our flagship consumer property, kind of drove the valuation of that sale.

Steven Cherry: I brought it up to ask about some criticisms of FreedomPop. Time magazine said that the company is less than upfront about some of the charges, such as there’s a 99-cent fee if your account is idle or nearly idle for a month.

Stephen Stokols: So Time magazine actually updated that article because it’s wrong. So they updated it, and actually, on our blog, we’ve sort of clarified we waived that charge going forward, and that charge was—to clarify what that charge was—to keep your account active, we get charged by our network partner a buck. We basically told users we’re going to have to pass that to you unless you turn your device on once a month. Most users had no problem with it. They turned their device on once a month, nobody gets charged. Some users had a problem with it, so we ended up waiving the fee, and then what happened is that it caused enough confusion, and it’s not like it was a revenue generator for us, where we basically just, we’re going to waive this thing across the board, just so we don’t have to worry about it.

So if you look at Time, they’ve updated it. If you look at a blog post we put out on Monday, we’ve clarified that we’re no longer charging that fee. But really, that was what we considered to be fair to enable a model where we’re giving away a lot of free data. We thought it was pretty fair, but at the end of the day, it caused more confusion, more sort of upset than it was worth, so we just waived it. It wasn’t worth the headache.

Steven Cherry: How big is the coverage area at this point?

Stephen Stokols: Well, that, now it’s nationwide, so we have with the Overdrive devices you mentioned before, we now have nationwide coverage 3G, where there’s no WiMax, and 4G in most of the major markets. So we’ve recently, as of the end of April, we went nationwide on the Sprint network. Some of our devices, like the iPod sleeve that you mentioned, is still only available in top markets. It covers about 120 million people.

So we’re a Web company at the end, and that’s why I said Dropbox is more what we look like. More than sort of anybody else, we consider ourselves sort of a Dropbox hybrid or even a Vistaprint office supplies. We sell services on top of—you know they give away 250 business cards, and they sell services on top of it. So we’re Web-only right now. We’re not in any retail. So we kind of think about qualifying registration, we think very much like a Web company. An e-mail address is as important to us as a physical address.

Steven Cherry: So what’s it like to move from a traditional telco like British Telecom to a start-up?

Stephen Stokols: It’s a good question. So, opposite ends of the world. So I went from not just a big telco, so BT is sort of the Verizon of the UK, so you have a huge telco, but you also have the whole British culture on top of it, so you get sort of bureaucracy on top of bureaucracy, and then went to the complete opposite: a start-up, where it’s scrappy and you’re sort of very operationally focused into the weeds.

And so it was a pretty dramatic shift, and the reality is FreedomPop is kind of a nice mix between the two in the sense that it takes my telco expertise—and I got good insights into what scares the telcos, how they make their money—and then I got a great sort of background in the Web and how it works and the dating space, which I actually consider sort of the armpit of the Internet—very competitive space, very small markets. People are battling to get, like you mentioned, all kinds of tactics to get people to convert into paid plans, and sort of mirroring those two worlds together gives me a very unique experience to be able to understand sort of telco as well as converting tactics on the Web, e-mail, deliverability, all the operational issues that go with running a big Web company.

Whether it be LinkedIn, Facebook, etc., I mean, these guys have huge operations that telcos just don’t get, and so I’m able to understand both worlds and sort of combine them together into what we call FreedomPop, a webco at the end of the day, sort of taking the telco product but really taking a Web business model, a Web operation, and applying it to a telco product.

Steven Cherry: Sprint is about to be taken over probably by the Japanese company SoftBank but maybe by the satellite provider Dish Network. Do you have a preference between SoftBank and Dish?

Stephen Stokols: Personally, I do. I don’t want to get too vocal either way. It doesn’t really impact FreedomPop significantly, but I would say if SoftBank were to go through with the purchase, I think it’s cleaner, I think the LT rollout, which I think is really more important for us, Sprint is in the process of rolling out LT. A SoftBank acquisition accelerates that and ensures that that happens in a timely manner.

A Dish acquisition could slow that down a bit, so all things being equal, we’d probably prefer the SoftBank acquisition, which seems to be the more likely because that’s going to sort of guarantee a quicker, faster, and full LT rollout.

And in addition, SoftBank is pretty disruptive in their own right, so they like what we’re doing, we like what they’re doing, we like the approach they bring, and vice versa. So I think just from aligned ideology perspectives, both us and SoftBank kind of see things the same way.

Steven Cherry: Is it fair to say voice telephony has become a commodity, even an added feature pretty much everywhere but the cellular world, and that’s where you’re trying to drive things?

Stephen Stokols: Yeah, exactly. I mean, the way we look at it, it’s a commodity and we’re trying to commoditize it even further. It’s a commodity where you’ve got huge margins, which by definition a commodity shouldn’t have huge margins, yet in the U.S., particularly in the U.K. less so, but in the U.S., huge margins because of this oligopoly structure here. So we’re coming in and trying to exploit that, shake that up, and ultimately bring down prices for all consumers across the market.

Steven Cherry: Well, Stephen, it’s a fascinating business model, and I wish you and your users luck with it, and thanks for joining us today.

Stephen Stokols: Yeah, thanks for having me.

Steven Cherry: We’ve been speaking with Stephen Stokols, CEO of FreedomPop, about his company’s ways of providing free and low-cost cellphone service in the U.S.

For IEEE Spectrum’s “Techwise Conversations,” I’m Steven Cherry.

This interview was recorded Tuesday, 18 June 2013.
Segment producer: Barbara Finkelstein; audio engineer: Francesco Ferorelli

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NOTE: Transcripts are created for the convenience of our readers and listeners and may not perfectly match their associated interviews and narratives. The authoritative record of IEEE Spectrum’s audio programming is the audio version.

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