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Small Phone Companies Use Wi Fi to Punch Above Their Weight

Small Phone Companies Use Wi-Fi to Punch Above Their Weight

By Brian X. Chen, The New York Times | Updated: 16 February 2015 11:25 IST

It would not be an insult to say Republic Wireless and FreedomPop are obscure little companies.

But they dream big. The two companies are at the forefront of a tantalizing wireless communications concept that has proved hard to produce on a big scale: Reduce cellphone costs by relying on strategically placed Wi-Fi routers. And when there are no routers available, fall back to the traditional cellular network.

They have been at this for nearly five years with mixed success. The companies say they are already profitable and gradually adding subscribers. But they are tiny - both say their customers are in the hundreds of thousands. Verizon Wireless, by comparison, has more than 100 million.

Still, the upstarts have been trailblazers, proof that alternative wireless networks are feasible and maybe even profitable. Now some giant companies look to be following their lead.

Last month, Cablevision announced a phone service that would be powered entirely by Wi-Fi, for $30 a month, while a traditional wireless contract costs around $100 a month. Google has also been working on a cellphone service that relies heavily on Wi-Fi, according to people briefed on the company's plans.

For consumers, all this could be very good news.

The big U.S. carriers - Verizon Wireless, AT&T, Sprint and T-Mobile USA - have not been worried about their Wi-Fi-powered competitors. But Cablevision and Google could force them to pay attention. And an industry already engaged in a price-cut war could be compelled to go even lower to keep the upstarts at bay.

"Wi-Fi first is a massive disrupter to the current cost structure of the industry," said Stephen Stokols, chief executive of FreedomPop. "That's going to be a big shock to the carriers."

The concept championed by the two little companies in their nationwide services is surprisingly simple. The traditional wireless carriers operate their services with cell towers, but occasionally in areas with extra heavy traffic they resort to Wi-Fi to bear some of the load.

FreedomPop and Republic Wireless do the opposite. They offer services that rely primarily on Wi-Fi networks, and in areas without Wi-Fi, customers can pull a signal from regular cell towers.

FreedomPop, a Los Angeles company that was started in 2012, works with companies that already provide Wi-Fi "hot spots" across the country, like the connections available inside McDonald's or Starbucks coffee shops, to create a huge Internet-driven phone network.

FreedomPop, which has 80 employees, offers software that enables smartphones to automatically join Wi-Fi networks, similar to how a cellphone automatically finds and connects to a cell tower. For $5 a month, users can gain access to a network of 10 million Wi-Fi hot spots a month, many of which are normally not open to the public, the company said. FreedomPop's other low-cost plans use a combination of Wi-Fi hot spots and Sprint's network. Some basic plans are free. Republic Wireless, based in Raleigh, North Carolina, uses a similar approach. For $5 a month, customers can make calls or connect to the Internet solely over Wi-Fi. For $10 a month, they can use both Wi-Fi and a cellular connection from Sprint in Republic's most popular option. Republic Wireless' parent company, Bandwidth.com, a telecommunications provider with about 400 employees, developed a technique to move calls seamlessly between different Wi-Fi networks and cell towers.

Both companies say they are growing rapidly. FreedomPop says it is doubling its customer base roughly every four to six months; Republic Wireless says its customer base is growing 13 percent a month.

"You can't pretend these companies are major players by any stretch. But I think their real importance is proof of concept," said Craig Moffett, a telecom analyst for MoffettNathanson. "They demonstrate just how disruptive a Wi-Fi-first operator can be, and just how much cost they can take out."

Google may be experimenting with a hybrid approach similar to the small companies'. A person briefed on Google's plans, who spoke on the condition of anonymity because the conversations were private, said the company wanted to make use of the fiber network it had installed in various cities to create an enormous network of Wi-Fi connections that phones could use to place calls and use apps over the Internet. In areas out of reach, Google's network would switch over to cell towers leased by T-Mobile USA and Sprint, this person said.

Google has been rumored to be working on this for several years. Now it may be in good position to do so.

Google's broadband Internet network, called Google Fiber, has been deployed in three metropolitan areas and is expanding to four more. In addition, Google's smartphone messaging app, Hangouts, could be a substitute for traditional texting services, and the popular Google Voice service can be used as an Internet-powered application for placing calls.

In major cities, the Wi-Fi-first network makes sense. People use smartphones frequently while sitting around their offices and apartments, and Wi-Fi can handle the job just fine.

But once people start moving around, it is not so simple. The benefit of a cell service is that your phone can switch among multiple towers while you are on the go. This process is called handover, which Wi-Fi was not originally designed to handle.

Still, to compete with the big wireless providers, out-of-the-box thinking is necessary. The federal government regulates the radio waves that carry phone calls and wireless data, dividing up them by frequencies so signals do not interfere with one another. The big carriers acquired the vast majority of the licenses for radio frequencies reserved for commercial wireless phone services, leaving little room for more competitors.

Wi-Fi, by contrast, is an unregulated, unlicensed technology that just about any individual or business can set up so long as they can tap into an Internet connection.

Representatives for Google, Sprint and T-Mobile USA declined to comment on the prospect of the search giant becoming a phone carrier.

But some wonder if even the biggest companies could make a Wi-Fi-based phone network work. Jan Dawson, an independent telecom analyst, said people would inevitably lose connections when they are on the go - riding a train or even just taking a walk.

"There are just so many places where Wi-Fi doesn't reach, and the quality of Wi-Fi that you can find is often subpar," Dawson said.

The top two carriers, Verizon and AT&T, do not seem too concerned. Verizon and AT&T both say they are confident in the performance of their cellular networks. T-Mobile supports Wi-Fi-powered calling for the latest iPhones, and Sprint said, without offering details, that it plans to improve its service by leaning on Wi-Fi.

David Morken, chief executive of Republic Wireless, argues that there are plenty of budget-conscious consumers, from students to professionals, who just want cheaper cellphone bills and do not mind making the leap to a phone service powered primarily by Wi-Fi.

But the majority of Republic Wireless customers opted for a $10 plan that includes a combination of Wi-Fi and cellular services, he said. In other words, the traditional cellular infrastructure will not go away. But he has faith that one day it will be the second option, not the first.

"There are many, many implications to cellular being relegated to a backup position," he said.

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