FreedomPop’s plan to become the anti-carrier

A lot of attention has been focused on FreedomPop’s intention to give away gobs of data and connect the iPhone (s aapl) to 4G, but it turns out the operator’s plans to launch a “freemium” mobile broadband service this year are much more radical than we thought.
According to the company, FreedomPop plans to discard every vestige of the traditional carrier business model and adopt the strategy of a Web startup. It’s not only giving away bandwidth but wants its customers to treat megabytes as a currency they can earn and trade. Instead of making its money through 4G access, FreedomPop is breaking one of the biggest carrier taboos: It plans to sell services over a free dumb pipe.

Turning 4G into a (nearly) free commodity

In an interview with GigaOM, VP of marketing Tony Miller laid out many of the pieces of FreedomPop’s intricate strategy that have so far gone unreported. The mobile virtual network operator (MVNO) is creating a social network as well as a 4G service; it wants to connect devices that have never seen mobile broadband connection; and it will sell value-added services on top of those connections, possibly even voice. Here are the details:

  • Free StuffFreedomPop plans to give a large block of data away for free. It’s targeting 1 GB at launch, though Miller said it may scale back or increase that allotment before it goes live in the third quarter. Miller said this wouldn’t be a onetime gimmick or promotion: The free bucket would kick in each month. As previously reported, FreedomPop will charge 1 cent for every megabyte over that free cap.
  • The MVNO plans to make capacity a currency that customers can earn and trade. Customers will get bigger free data buckets for every customer they refer to the service. And in the future, Miller said, FreedomPop plans to make that capacity transferable. Say you’re running up against your 1 GB cap, but a friend who also happens to be a FreedomPop customer may be well short of hitting his cap. That customer can give you a portion of his free data allotment, allowing you to keep surfing gratis.
  • FreedomPop plans to build a larger social network around those bandwidth-swapping capabilities. Customers will be able to form social communities tied to their device, sharing their location, status and other presence information with one another.
  • The carrier plans to sell value-added services to its customers. Miller wouldn’t reveal the specific services, but he likened its strategy to the freemium model used by Internet companies: The core services — access and social networking features — will be free, but FreedomPop will layer on paid applications. Miller also said the company is considering launching its own VoIP service but had made no final decisions.
  • While the WiMAX shell for the iPhone 4 and 4S has gotten the most attention, Miller said FreedomPop also hopes to launch this year with a mobile hotspot and USB dongle. The shell will act as a mobile hotspot distributing its mobile broadband connection to other devices through Wi-Fi, and it will run off its own battery, which can perform double duty as an iPhone charger. The company is also designing a shell for the iPod touch and in the future plans to connect other smart devices — and not necessarily just smartphones, Miller said.

How on earth will it make money?

Miller stressed that 4G access is only a minor part of the revenue equation. FreedomPop will get cheap WiMAX connectivity from its wholesale partner Clearwire(s clwr), and it can afford to give most of that access away, he said. Customers who don’t use much data each month will cost FreedomPop little. Customers who consume a lot will quickly move into metered data, which allows the carrier to easily recover its costs.
The customer that poses a problem initially is the one that uses his entire cap each month without exceeding it, Miller said. Eventually those mysterious value-added services Miller referred to will turn those customers into profitable investments. Miller wouldn’t even give a hint as to what most of those services would be, though he did talk up the potential of VoIP.
“Speculatively this is something we would consider,” Miller said. “We’re not coming off the gate with a ‘cut the cord completely’ strategy. We’re launching first with mobile broadband. But down the road a VoIP service could be a possibility.”
Considering that Skype (s msft) co-founder Niklas Zennstrom is spearheading the launch of FreedomPop through his venture capital firm Atomico, you would think VoIP has to be a strong consideration. Miller himself pointed to its planned launch of a WiMAX shell for the iPod touch, which FreedomPop or another over-the-top VoIP provider could easily turn into a softphone. “Some of these devices that were never meant to be phones can easily be transformed into them,” Miller said.
Miller also said FreedomPop will avoid the huge customer acquisition costs carriers face by taking the same viral marketing approaches as an Internet company. Its customers will beget more customers, drawing them in by the network’s social features and the promise of more free bandwidth. Miller said FreedomPop plans to grow the same way as Dropbox, which grew exponentially by rewarding referrers with more online storage.
“From an economics perspective, we need to look like a Web company,” Miller said. “That means customer acquisition costs can’t be $20 a pop.”

Will it work?

FreedomPop is turning the entire carrier business model on its head. In the data world, carriers have long tried to sell services, but for the most part they have become dumb bit pipes. By giving away access and focusing on services, FreedomPop may well succeed where the operators failed. But it’s also taking a big risk.
FreedomPop is betting its services will somehow be more appealing than any other over-the-top services available through an open broadband connection. It could block access to alternate VoIP providers or whatever the over-the-top equivalents are to its other unnamed services, but then it winds up playing the carriers’ game. But if it does provide unrestricted access to anything and everything out there on the Web and in the iPhone app store, its customers might just take the free data and run.
Sign image courtesy of Flickr user frankhcommodities image by stock.xchng user Lotus Head