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For Consumer Cellular Prices, Look Out Below!

For Consumer Cellular Prices, Look Out Below!
February 11, 2014 9:36AM

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A price war is brewing among wireless carriers, with AT&T firing the loudest show when it slashed the cost of its family data plans, a move aimed at stealing high-end customers from Verizon. But a small Internet-based upstart called FreedomPop has upped the ante on its giant rivals, offering unlimited voice and text plans for $4.58 a month.

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Mobile phone service in the U.S. looks headed down the same path as traditional land-line voice communication before it. It's dropping in price, thanks to the Internet, and the fall is accelerating.

AT&T fired the loudest shot in the brewing price war last week when it slashed the cost of its family data plans, a move aimed at stealing high-end customers from Verizon. The price cut came one month after No. 4 U.S. operator T-Mobile offered to cover the hefty fees consumers usually pay when they switch carriers before the end of a contract.

Yet the biggest disruption to the consumer cellular market may come from below, thanks to a small Internet-based upstart with eye-popping prices and an aggressive business plan.

FreedomPop -- which in October rolled out the novel combination of a low-end smartphone and free basic service for voice, text and data -- has upped the ante on its giant rivals.

Starting this month, it's also offering unlimited voice and text plans for $4.58 a month, a fraction of what larger carriers charge. What's more, FreedomPop is offering the service on higher-end phones. "We're declaring war on an industry that's taken advantage of consumers for too long," FreedomPop CEO Stephen Stokols says.

The company's service takes advantage of the fact that most mobile calls today travel over the Internet for at least part of their journey between callers.

Breaking voice calls into packets of data and sending them alongside other digital traffic over the big carriers' Internet-switch networks has dramatically lowered the operator's costs. But so far at least, the savings have been reaped mostly by the wireless giants rather than consumers.

That's why the fight between the two largest U.S. cellular carriers unnerved telecom investors, who sold off their shares and those of T-Mobile and No. 3 operator Sprint after AT&T's price cut.

An average plan that includes 500 MB of data costs $85 a month in the U.S., compared with $8.80 in the U.K. and $24.10 in China, according to the International Telecom Union.

Yet, as we told you here in October, FreedomPop is offering a comparable plan free, and it has cut the cost of a more robust plan targeted at higher-end smartphone users by more than half.

I've been testing the service, which runs over Sprint's network, for the past two weeks on a Samsung Galaxy 2 phone, alongside two other phones: an iPhone 3G running on AT&T's network and an iPhone 4S from Sprint. (continued...)

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