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Skype Co-Founder Seeks To Disrupt Net Access Market with Free Data Offer

Skype Co-Founder Seeks To Disrupt Net Access Market with Free Data Offer
December 12, 2012 11:21AM

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The FreedomPop business model by Skype co-founder Niklas Zennstrom (pictured) "could have a future," said analyst Wes Henderek, but the "implementation by FreedomPop is problematic." To succeed long term, Henderek said, the approach needs to offer more at the free level, since even a casual user could push the monthly 1 GB limit.

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Can a co-founder of Skype creatively disrupt the wireless broadband Internet access business model for small businesses and homes, as he helped to do with Internet telephony? Niklas Zennstrom intends to do just that with his new startup, FreedomPop.

The new, Los Angeles-based company's business model offers its lowest tier of broadband wireless use at an unbeatable price: free. Home or office users obtain an $89 4G modem, the FreedomPop Hub Burst, which includes 1 GB of data each month at no charge and which connects up to 10 Wi-Fi-enabled devices.

Users can earn additional data access by agreeing to participate in offers or surveys, signing up for retailers' e-mail lists, or referring friends to the service. Additional bandwidth can also be obtained through plans beginning at $8.99 monthly for 10 GB.

Model, Implementation

The company said the service was aimed at customers who are not heavy Internet users, and who otherwise would be paying for bandwidth usage they don't use.

The company, launched in early fall, said it now has a positive cash flow. Currently, FreedomPop uses Clearwire's 4G WiMax network, which covers about one third of the U.S., but FreedomPop said it will begin using Sprint's 4G LTE network next year. Customers with the current hotspot will need to switch to a new hotspot to utilize LTE.

Wes Henderek, an analyst with industry research firm Current Analysis, said that this business model "could have a future," but that the "implementation by FreedomPop is problematic." To succeed long term, he said, the approach needs a higher initial free level, since even a casual user, downloading some photos and surfing the Web, might be pushing the monthly 1 GB limit without movie watching.

Additionally, he said, the WiMax network has "spotty" coverage with relatively slow speeds. Henderek also noted that other access providers are using the incentive model of offering benefits, such as more data or cash payments, for signing up friends.

Carriers 'Are Going to Hate Us'

This is actually the second launch from the new company. In October, it rolled out a service that uses a $99 case for the iPod Touch, with an iPhone version coming soon. That service also uses Clearwire's network, provides 500 MB per month for free, and similarly offers the ability to earn free data.

CEO Stephen Stokols, a former vice president at British Telecom, told Bloomberg news service Wednesday that over 20 percent of users on that service have purchased additional paid tiers.

Stokols added that his company is offering the ability for consumers and small businesses to "cut 80 percent of your cable bill." He added that the model will be "disruptive," and carriers are "going to hate us."

To date, FreedomPop has raised $7.5 million in investment, including from Zennstrom, who was with Skype when it was sold in 2005 for $3.1 billion to eBay. Zennstrom, as part of a consortium of investors, later bought Skype back and then sold it to Microsoft last year for $8.5 billion.

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