Market Insight

Two 'free' mobile Internet services launch

March 22, 2012

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Two US companies have announced independent services offering free mobile internet access to consumers. NetZero and FreedomPop will offer some data for free, while charging for any additional data requirements. Both companies are using Clearwire's WiMAX network.

NetZero will offer consumers 200MB of data per month free for a year after which a user would need to purchase a data bundle. These bundles are also available immediately for users that need more than 200MB of data. Two choices of hardware are available for users: a USB stick and a personal hotspot, costing $50 and $100 respectively.

FreedomPop's model is slightly different. It will offer consumers 1GB of data for free forever, charging $10 for every additional GB. There is also a social component with users able to pool data plans and users get additional data for bringing their friends into the service. Rather than a USB stick or personal hotspot, FreedomPop's service will be provided through an iPhone case. The case only fits the 4 and 4S versions of the iPhone, and will also be free (though a refundable security deposit will be required).

The freemium model, while appealing to consumers, faces many difficulties when it comes to providing mobile broadband access. Hardware requires an upfront payment, whereas subsidized hardware can be purchased with a two-year plan from operators, which could be an issue for the target market; cost conscious consumers. 

Using Clearwire as a wholesale partner also brings its own issues. Coverage is limited to 130m people in 70 cities, which does not compare well with Verizon's LTE network which covers more than 200m people in 203 cities. Verizon's LTE network is also faster than Clearwire's WiMAX network. It is unlikely that either company would be able to afford to launch a freemium offering with any other wholesaler however. There are no indications as to whether NetZero and FreedomPop will have access to Clearwire's LTE network when it launches later in the year.
Both companies are hoping that their contract free proposition will be attractive to customers who would shy away from expensive and long contracts. The minimum price of a mobile broadband two-year contract from either of the 'big four' of Verizon, AT&T, Sprint and T-Mobile is $35 per month. While the prices on a per GB basis are not cheaper than these main operators, the flexibility provided is the key selling point.
The clearest opportunity for these products is tablets. A minority of tablets are sold with cellular connectivity, and only a small proportion of those have data plans attached. Small bundles of free data could entice people into using their tablets on the move more often, which can turn into purchases. As most tablets are Wi-Fi only, there is a market available for hotspots. The main challenge in this regard is the increasing proliferation of free Wi-Fi.
While freemium has proven successful in mobile gaming, this success is not transferable to mobile internet access. Gaming provides an extra psychological incentive to buy now in order to win. Freemium access is relying on people not willing to wait even a few minutes for internet access for their devices. Unfortunately for NetZero and FreedomPop, so far, the vast majority of consumers have shown they can wait for access.

North America USA
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