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 just now 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 rival Verizon.
The price cut came one month after No. 4 U.S. operator T-Mobile boldly offered to pay the hefty fees consumers usually pay when they switch carriers before the end of their 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.
Los Angeles-based FreedomPop — which in October rolled out the novel combination of a low-end smartphone and free basic service for voice, text and data — has now upped the ante on its giant rivals.
Starting this month, it’s also offering unlimited voice and text plans for just $4.58 a month, a small fraction of what larger carriers charge.
What’s more, FreedomPop is now 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 for free, and has now 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 last 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.
I carried all three around, checking service strength and placing various calls from my home office in San Francisco and while traveling the Bay Area by car and subway.
FreedomPop’s service requires a strong 3G connection to work properly, and even in places where I was connected to Sprint’s 4G LTE network and Wi-Fi, the signal was a bit weaker than AT&T’s.
For example, FreedomPop had no luck grabbing a signal while I was riding underground on public transit trains, whereas I do get service on my iPhone.
The upstart service also dropped a call to a wireline phone number on the East Coast of the U.S. while I was sitting at my desk, something that almost never happens on AT&T’s network.
Still, for the majority of the calls I made during the business day, most around the Bay Area, the service worked fine.
So while I can’t recommend it right now for heavy business users or helicopter moms who demand Grade A service 100% of the time, it’s an adequate phone and service package for most consumers.
And at the price FreedomPop is offering, the cost savings versus the large carrier plans is as much as 85%.
To offer the service so cheaply, FreedomPop buys its smartphones at auctions in warehouses and on shipyard docks. The startup is on track to sign up more than 200,000 customers by the end of this quarter, Stokols told me last month.
“The big carriers know that the threat is coming, but they’re more worried about each other right now,” said Stokols, a former executive with British Telecom.
In the meantime, FreedomPop will be trying to revolutionize cellular pricing from below, one user at a time.