This Company Can Change the Smartphone Industry Forever

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Tired of sky-high smartphone bills? The startup wireless data service FreedomPop can help smartphone users slice hundreds of dollars off their phone bills. FreedomPop believes the Internet is a right, not a privilege. The innovative startup was founded by Niklas Zennstrom, co-founder of Skype, and is a data service that is giving out half a gigabyte of data for free, and offering additional data at rates less than major carriers.

Although FreedomPop isn’t the first startup with an innovative and intelligent idea, the company’s credibility can be seen by looking at their partners.  The wireless data company has partnered with Clearwire (NASDAQ: CLWR) and Sprint Nextel (NYSE: S), and is using their networks to provide faster, more reliable service. Their agreement with Sprint is a five-year contract and should expand their LTE service beginning in 2013. Until FreedomPop makes the conversion onto Sprint's LTE spectrum, FreedomPop users will be connected via Clearwire’s 4G service and will have downloads speeds anywhere between 4 and 10 Mbps, and upload speeds between 1 and 2 Mbps.

 

In order to connect to the service, users buy or rent compatible hardware.  The hardware includes the $89 “Freedom Spot” hotspot that can serve up to eight devices, the $49 “Freedom Stick” USB that connects any PC or Mac via USB, and by the end of the year the company will be selling a $99 iPhone and iPod case that connects to the internet, works as a hotspot, and is a charging case.

FreedomPop is coming onto the scene amidst the largest wireless carriers attempting to raise prices for premium Web-browsing speeds. Wireless providers like AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) are already taking their customers to the cleaners, with monthly fees often steeper than $100.

Verizon, the nation’s largest wireless carrier, stopped selling unlimited data plans a year ago. The “Share Everything” plan went into effect at the end of June, and allows subscribers to share buckets of data across devices, and there’s no limits to voice calls or text messages. AT&T has followed Verizon’s footsteps and launched their “Mobile Share” data plans in August. Unlike Verizon, AT&T will still have their non-bundled plans available to customers. Looking at the prices in the table below, it’s evident that shared data only makes sense if you’re willing to give up gigabytes for voice minutes and text messages.

 

Wireless carriers that only offer plans in bundles, like Verizon, are shutting doors for FreedomPop. Although FreedomPop allows users to make calls using internet-based services such as Skype, they are a data-only company. In order to cut costs for a larger audience, FreedomPop would most likely target customers who will keep their voice call and text messaging services with their wireless provider, but save money by using FreedomPop’s data service instead of their wireless carrier. If other wireless providers follow Verizon’s lead in only offering bundled services, they can potentially cut FreedomPop out of the market.

FreedomPop isn’t the only startup making a push to offer cheaper data. Republic Wireless, who also partnered with Sprint, also uses Wi-Fi to deliver voice, messaging, and data, but in order to sign up for their service customers have to purchase a $250 Motorola phone and pay a $29 start-up fee. FreedomPop seems to have the best business model among startup data service companies. Major wireless carriers have to be worried that this innovative model geared toward “free internet” can shake up the industry and push prices down.


This article is written by Mike Pate and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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