Messaging app TextNow is morphing into an all-IP mobile operator

TextNow is one of dozens of over-the-top messaging companies populating app stores around the world. It has done all right for itself. Its app is generating 18 million downloads, and it has built up a revenue stream by swapping advertising views for voice minutes. But TextNow is no WhatsApp or Viber, each of which has hundreds of millions of users.

Samsung Galaxy S II_1

TextNow’s creator Enflick, however, plans to set itself apart from the messaging pack by becoming a mobile virtual network operator (MVNO), the company told GigaOM. TextNow isn’t going to be your typical virtual operator reselling a carrier’s voice and data bundles, Enflick CEO and co-founder Derek Ting said. Instead, it hopes to become the country’s first entirely all-IP mobile carrier — think Vonage, but on a mobile handset.

In the next few days Enflick plans to kick off its new business with a TextNow Wi-Fi hotspot that connects to Sprint’s(s s) 3G network. But it will start looking more like a full-fledged mobile operator later this summer when it starts selling an Android smartphone, a refurbished Samsung Galaxy S II. This phone won’t ship with any of its normal cellular voice and SMS features enabled. Instead, Ting said the device will connect solely to mobile data networks, and all calls and texts will be routed through the TextNow’s back end VoIP and messaging system.

A model tailor-made for an MVNO

Enflick has been edging toward the carrier model since its inception, Ting said. Like its messaging competitors textPlus and TextMe, TextNow issues all of its customers ten-digit phone numbers, which they can use to reach the world beyond its network. Consequently most of TextNow’s customers use the service to add SMS and voice capabilities to devices never intended to make voice calls or receive text messages.

“The common use case for us is people downloading our app on a tablet or an iPod Touch,” Ting said. Some customers use TextNow to compliment their existing text and voice services on a smartphone, but their use is minimal, Ting said. It’s heaviest users tend to be a younger demographic that either can’t afford or don’t want to pay a monthly mobile phone bill.

Derek Ting - HeadshotIts first device, Ting said, is a Novatel(s nvtl) MiFi targeted at those users — they already have their device and service, but they want to be able to communicate in places where they don’t have access to Wi-Fi. Enflick is selling the MiFi for $40, and launching a baseline plan for $15 a month. It includes 500 MB of data, unlimited messaging and 200 voice minutes, which carry over into the next billing cycle in unused. Enflick also plans to offer 1 GB and 2 GB plans – which come with bigger buckets of minutes — for $25 and $40 respectively.

The smartphone, however, will allow Enflick to go after a new set of customers. There are a lot of people who stand to benefit from inexpensive IP communications, but don’t have the comfort level or patience to experiment with OTT apps, Ting said. By selling its own smartphone, Enflick can offer a no-hassle pre-configured service.

“We send them a phone that just works,” Ting said. “It’s an affordable device and the service is low cost, and they don’t have worry about doing anything to get set up. They can switch their brains off.”

The refurbished Galaxy S II will cost $120 and will connect to both Sprint’s 3G and Clearwire’s(s clwr) WiMAX networks. Enflick will offer the same data plans for the smartphone as it does for the MiFi. Ting added that it is in the process of testing an LTE smartphone that will connect to Sprint’s newest 4G network.

Is the U.S. ready for an all-IP carrier?

Both TextMe and textPlus have plans to add wide-area connectivity to their services, but they’re doing so with partners like Open Garden and FreedomPop. Enflick, however, decided to become its own carrier because to gain greater control over devices and service plans.

“For instance, one of the reasons we went the refurbished route isn’t just because of cost,” Ting said. “We’re huge believers that there is too much electronic waste out there. We’re looking at many phones that are only a generation old that we can give a second life.”

TextNow tablet appEnflick also may soon have company in its all-IP niche. Mobile broadband MVNO FreedomPop has announced intentions to launch its own VoIP service. It’s taking the opposite route to the same destination: evolving from a data MVNO into a mobile VoIP provider.

Both companies will have to contend with the limitations of today’s mobile broadband networks. Say what you will about the carrier voice plans and policies, but calls over the cellular network are for the most part reliable – at least more reliable than VoIP. Except for the newest HSPA and LTE systems, mobile networks still lack the speeds and resiliency necessary to produce a consistent VoIP experience.

Ting said Enflick is trying to compensate for those limitations by using high-compression codecs that are more tolerant to the inevitable packet loss on mobile networks, but Ting added that he believes TextNow’s customers also have lower expectations for a voice service than your typical mobile subscriber. TextNow users – as the app’s name implies — are primarily messaging not talking. They tend to use voice sparingly, Ting said, and only as a fallback to SMS.