Self-styled budget MVNO FreedomPop turned heads when it first emerged in the US market in 2011, claiming to offer a limited amount of mobile services completely free of charge.
FreedomPop says the unique business model, which can only generate cash if users choose to purchase add-ons to their free tariff, was met with a cloud of “suspicion” by operators, and there were doubts over its sustainability.
Almost five years on, the company is able to paint a different picture. It is increasingly seen as a pioneer in the ongoing battle the industry faces in monetising data services. And not only has it successfully launched in the UK, its first international market last year, but it is now turning attentions to convert a large bulk of its users towards its paid services.
Last month, it also made a huge splash in Spain, after unveiling a plan to launch free WhatsApp services, regardless of usage.
The company is the brainchild of US technology entrepreneur Stephen Stokols, who says the mobile industry is now keen to work with him in establishing a similar model for their businesses, and make the most of the growing data opportunity.
In this interview, Stokols reveals some controversial thoughts on Facebook’s internet.org, something of a rival to FreedomPop; his plans for growing the company; and his career background, which included a three year stint at BT, working for Gavin Patterson, now BT’s influential CEO.
MWL: Last month, FreedomPop claimed it had done what Facebook had failed to do in Europe by launching WhatsApp for free in Spain. Is this part of a wider plan to position FreedomPop in a similar way to internet.org?
Stokols: It is. Internet.org is basically trying to get to the same end game as us. We’re doing it by working with operators to get them to whitelist WhatsApp or Facebook, and coming at it from the operator position, and that is by creating a new business model that works for them.
There is huge penetration of WhatsApp in Spain, and an operator can either break that, or do what we have done, which is create a freemium model which works and actually embrace it. Operators are butting heads with internet.org as they see it for what it is, which is Facebook saying that they need to white label their own services so people can use it for free.
“Facebook has got a selfish motivation behind internet.org”
Facebook has got a selfish motivation behind internet.org, while operators have a conflicting objective because they want to monetise this stuff, and we are coming at it with a freemium business model which we have made work.
MWL: Is WhatsApp the first of a number of data-centric services you plan to offer for free?
Stokols: The reality is, in Spain, over 90 per cent of messaging is via Whatsapp. So it makes sense there. We will certainly work to localise different offerings. In Asia it might be Line, and in other markets, it will be other popular applications. We are still focused on core communications services, consistent with internet.org, but we are enabling the free communications services for everybody. Internally, we say it’s a right, not a privilege.
MWL: Internet.org’s problems in places like India have been well documented. Is this strategy therefore a risk?
Stokols: We have a slightly different approach. Some of the issues Facebook has experienced is because they are giving preferential treatment to certain services. For us it’s a proposition. We are saying you can have this free WhatsApp plan. It’s slightly different than going to a carrier and asking them to offer Facebook, and nothing else for free, then paying for that behind closed doors. In this case we are staying at arms length from everybody, meaning we don’t have formal relationships. We have had discussions with Facebook but we don’t want a formal relationship. We are enabling this completely on our own. We are coming at it from a perspective where slowly it is a proposition that is no different from other countries, other than the fact there is no texting in Spain, but everything is done via WhatsApp, so obviously zero rating the sevice makes sense.
That is a trend across the globe. In a lot of markets OTT has killed text and voice, so coming in with free text or even free voice in some markets makes no sense because there is no value to the consumer. Our approach is different – we are concerned, which is why we are taking a more hands off approach and not working with any of the OTT players directly.
MWL: You have recently outlined your intentions to begin monetising your services by upselling services and converting your free users to paid ones. Does offering free services contradict that?
Stokols: Not at all. One of the core capabilities of FreedomPop is our expertise around conversion. We have built an internet company, not a telco, and it sells communication mobile services. The capability we have built out is to convert people from free to pay, not just text data or voice but different value added services.
“We have built an internet company, not a telco”
In an OTT world, we have to get comfortable enough to alter our proposition to embrace OTT. They use WhatsApp, so we give them free WhatsApp instead of text.
MWL: Would you say your model is a blueprint for operators looking to make more from data?
Stokols: Yes and no. You have an element of disruption and cannibalisation in our model, where an operator cannot fully embrace free because it cannibalises multi billion dollar revenue streams. Look at the US, we give away half a Gig of free data, and that’s like $1.5 billion revenue for a carrier like Sprint.
To fully embrace it, you are talking about huge cannibalisation of an operator’s existing revenue, so they are caught in a classic dilemma.
We are working with a lot of carriers formally to leverage our conversion capability and drive up their ARPU, while pushing additional digital services, which in theory can give them the opportunity to be more aggressive on pricing.
MWL: Should operators look at zero-rating more services? Do you believe this is a good approach for operators?
Stokols: Yes I do. There are obviously some regulatory hurdles and it depends on the market but if you look at the idea of whitelisting certain apps, the value add proposition to the consumer, it works at the forefront and you will see the industry in specific markets move in that way.
MWL: Does more need to be done at a regulatory level to bring down the cost of spectrum, and in turn, the cost of data at the retail level?
Stokols: The data cost and pricing is going up in some markets and going down in some markets at a retail level. In the US someone may give away 5 Gigabytes of data for $50 and the average consumption will be 2 Gigabytes so they are really selling a gig for $25 each. Usage is fixed. One of the nuances and secrets of the industry is people are going to end up using what they will use. If they are on a 10Gb plan and are moved to a 20Gb plan, general usage won’t increase much. The value however looks a lot better.
The nuance is our model is different. Carriers are focussed on monetising data, particularly as they are not monetising text and data in the same way they used to, so they need to monetise data. Google will look at how to get advertising revenue to subsidise the data. FreedomPop will look at how to sell services that are valuable on top of the data to subsidise the data.
One of the reasons why we are starting to blow up in a good way is because we can change the way carriers look at the whole model, which in part is by being able to monetise the data without selling it directly. And things like digital services, or compression technology, is being used to get more out of data without consuming so much. Even online security, tracking, child protection are services you can add to the network – there are all types of services that add value on top. In our model we want to get to a point where we don’t make money on data at all.
MWL: What is your wider strategy for growth? What are your targets for subscribers and conversions?
Stokols: We have a million subscribers in the US and we want to reach 10 million, which is taking a big chunk in terms of total market share and terms of net adds every quarter, because this metric in the US continues to shrink. There were 12 million net adds across the whole market in 2015 and it is forecast to go down to six million in 2022.
In the UK, we want to break through the one million mark in the next two years. The first six months has been about optimising, getting conversion and the right value added services in place and working through logistics.
“In each market we only enter it if we think we can get scale as defined by more than a million subs”
We are now six months in and our conversion rate is almost as big as the US. UK is 46 per cent and US is 48 per cent of people going from free to pay, so we are starting to ramp up in the UK now and you will see in Q3 and Q4 a lot of growth.
As our first international market, in the UK we have ironed out a lot of kinks. In Spain we want to get to half a million subs in 18-24 months and crack through the seven figure market. But in each market we only enter it if we think we can get scale as defined by more than a million subs.
MWL: Where do you plan to launch next?
Stokols: The market is beginning to open up and you will see our international expansion. There are big companies that want to partner with us. They see a model that they can enable. If you are a big media company and you need a wireless presence, you can either spend hundreds of billions on it and try to get up to a million subs or you can partner.
Outside of FreedomPop, of the people that are trying to be disruptive, there is not a lot of success out there. There are a lot of companies that want to move into the wireless space, and media companies or fixed broadband companies that have approached us for joint ventures in markets, and that is part of our expansion strategy.
MWL: There have been a lot of rumours about your recent investors. Can you shed any light on this?
Stokols: In the last 12 months we have secured $86 million from a range of investors, including Axiata, and Intel as a strategic investor from the device and chipset side, and most recently we brought in a third investor that is not public yet.
They have $15 billion in capital and their portfolio is telco specific, with two massive stakes in two operators.
MWL: How did you come up with the idea for the company?
Stokols: It was a convergence of life experiences. In 2004-2007 I was in London working for BT, running strategy working for Gavin Patterson, who was my former boss, and he is now an advisor to us.
My job was to find disruptive opportunities and find new revenue and I did a bunch of deals to generate about £500,000 in new wave revenue for them.
But, ultimately it is a big company and there is only so much innovation you can do. So I left in 2007 to start an internet company (with Gavin’s blessing by the way, it wasn’t hostile). The internet company was an internet browser based video firm. It operated two way video via the browser, which of course is now mainstream. The idea however snowballed into an internet dating type company, and we had 10 million users in 18 months. It put people face to face via video for three minutes. I didn’t set out to create a dating company, but it just happened. It was a blessing in disguise.
“The dating space is really the armpit of the internet”
The dating space is really the armpit of the internet. It is a small market with big players, and through this I learnt how to convert users from free to pay, and drive low cost customer acquisitions over the internet. We sold it in 2011 and I started working on FreedomPop which was really a convergence of my internet background and my telco experiences. I thought, if I could take what we had done in the internet space in a $2 billion market and apply it to a trillion dollar market, it would be successful. The timing was also right because 4G was being rolled out and we were going to a data centric world to disrupt it.