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Company Result Reports WiFi

FreedomPop set to record first ever profit, has eyes on second US deal

The disruptive WiFi-first models of SIM-only MVNOs come with some major benefits for both consumers and network operators, but these services have struggled to turn popularity into profitable businesses. That was until FreedomPop, which claims it is set to record its first ever net profit by the end of this year.

That will represent four years of effort, as one of a group of US pioneers of the WiFi-first model. But FreedomPop now claims it is converting nearly half of its users in the UK to paying subscribers, a strong sign for a freemium model whose profit potential has sometimes been questioned.
FreedomPop’s service launched in the US in 2012 and then expanded to the UK last year, operating as an MVNO on the 3UK network. . Its freemium service offers free data, voice and text to users and pushes valued-added services for a small fee. Importantly to the low cost base, user connections default to WiFi, only using the cellular network when there is no good WiFI signal. This approach, pioneered by FreedomPop, Scratch Wireless and Republic Wireless, is now also seen in the Google Fi multi-network MVNO – and it has led to some MNOs such as T-Mobile USA and Sprint to adopt the same tactics to ease the strain on their cellular networks.

FreedomPop CEO Stephen Stokols told Reuters this week that the company’s 48% UK conversion rate is higher than those of WhatsApp and Spotify (round 12%), but he wouldn’t reveal the exact size of the UK subscriber base,only saying that it was a six-figure number. This would be an impressive achievement by the four-year old company, and not one to be shrugged off considering it has plans for further international expansion.

Intel-backed FreedomPop has a partnership with Sprint in the US (which also looked at acquiring the start-up last year, but talks fell through) and Stokols said it plans to strike a second US mobile operator deal soon, having recently delivered a presentation to 18 global telcos in Silicon Valley with the theme being ‘How are we going to work together?’

He added that FreedomPop has been a significant revenue generator for Sprint, its model swelling Sprint’s own low-end subscriber base. As he told Reuters: “Sprint is making a ton of money off us and we take the risk if the model doesn’t work.”

But all is not so harmonious in the WiFi-First market, and FreedomPop also has the opportunity to disrupt MNOs in some of the countries it may target.
The French cellular market felt the destructive impact of Iliad’s WiFi-first cellular arm, Free Mobile, when it launched its €2 mobile offer in 2012 – which saw it surge to 10m customers in three years.

Initially, this delivered short term consumer benefits in the form of lower prices and more competition, but it also changed the cellular landscape altogether –forcing Orange, SFR and Bouygues to offer similar deals to compete, and sparking price wars, job losses and consolidation

At the time we suggested that something similar could happen in the UK upon FreedomPop’s entry into the region – triggering low cost responses from the MNOs, or more immediately from larger MVNOs like Virgin and Sky. Nothing on the scale of the French experience has been observed yet – partly because the UK is far more price competitive than France was when Free made its debut – but FreedomPop is still just a fresh face in Europe and has the chance to increase its impact once it turns a profit

Over in the US, price wars may loom too as larger players emulate the WiFi-first model of Republic and Scratch. . In the hands of larger players (the cable WiFi players in the US are almost certain to launch such services and Cablevision already has a WiFi-only offering), this could cause a price war, especially for data services – although voice over WiFi is increasing in popularity too.

Earlier this year FreedomPop sealed a $50m round of funding, which will mainly support international expansion beyond its current markets in the US and UK, and its launch in Spain is due next month. It also recently announced a roaming service called Global SIM, which includes a personal hotspot and allows its customers to access 200Mb of data a month for free in 25 countries including the biggest European markets – that total will grow to 40 during 2016, extending beyond the US and Europe into parts of Asia and Latin America.

It will also be venturing to expand beyond SIM cards into its own branded handsets later this year. These will be optimized for WiFi-first operation – an approach well suited to FreedomPop’s financial backer Intel.

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