ANGELES — There are times when FreedomPop founder
Stephen Stokols would get better coverage or service
using a competing cellular carrier. Like when he got
booted from his own provider after getting tripped up by
Stokols — along with his 2 million customers — has
been willing to suffer occasional headaches in exchange
for an unbeatable deal. Half the people using FreedomPop
pay nothing for cellphone service, including mobile
are limits on monthly usage (500 megabytes in the U.S.)
and caps on calling and texting (three hours and 500
messages). Finding a shop, reaching a customer service
agent or buying a phone from FreedomPop can be
complicated. And users need a credit card.
contends, though, that many should find the trade-offs
attractive because he pegs median mobile data usage in
the U.S. at about 700 megabytes per month.
can pay a few dollars to pick up extra data, up to about
$20 a month for unlimited data, calling and texting. Not
a bad deal compared with $40 most elsewhere.
can afford to slash prices thanks to its departures from
industry conventions, including accepting lower profit
Los Angeles company says its emergence over the last six
years has led to imitation from T-Mobile, a
near-acquisition for as much as $450 million by Sprint
and price cuts at Verizon and AT&T. And all that has
come while serving just a fraction of the 18 percent of
U.S. cellphone subscribers not tied to a Big Four
carrier, according to market researcher Besen Group.
the U.S., FreedomPop is licensing technology in Italy
and Mexico and gaining users in Spain and the United
Kingdom. It’s targeting 100 million users worldwide by
2020, some through partners that collectively have 500
20 percent of them is not unrealistic," Stokols
he must decide how far to see through his vision to give
away more and more data. The company is reviewing a
previously undisclosed acquisition offer, but
discussions are continuing about potentially going
public next year.
has raised $109 million in venture capital, and the
company could become self-reliant soon if, as expected,
it generates profit for the first time this winter.
Stokols declined to provide specific financial figures.
want to get to where communications is a free utility
everywhere," Stokols said. "If you have
internet, you’re at an instant advantage."
investors say that the company is special because its
marketing costs, about $10 per customer, are lower than
anyone else’s. Free offers tend to get noticed with
little spending on advertising. That lets FreedomPop
charge customers less.
says the company’s goal is to get people paying —
not necessarily to twist them into paying as much as
possible. "That’s what is different from a
typical carrier," Stokols said.
collects data about users’ backgrounds and phone
habits. Stokols said the company can identify who’s
likely to be a freeloader who will never pay — and in
turn, the company doesn’t waste time pitching such
users. Instead it closely studies users who pay for
extra features to find new subscribers with similar
characteristics who may be more likely to spend in the
may be open to spending a couple of dollars for data
compression, to help them stay under data limits. Others
may benefit from international calling and not realize
it. The average monthly revenue per paying user is about
$15, compared with about $45 at the major carriers.
customers have accused FreedomPop of being sneaky with
terms and conditions. Stokols acknowledges his company
must improve on warning users about forthcoming charges
or service suspensions as limits near. He has responded
with new self-serve account management tools that reduce
the need for customer service agents or stores.
say they’re not losing sleep over pockets of negative
ambitiously excessive desires from consumers," said
Mark Tluszcz of Mangrove Capital, a FreedomPop
shareholder. But "when you’re offering a real
cheap service sometimes you have to cut corners on
service or quality. We have no ambitions to be whiter
than white snow."
tries to prevent itself from being swindled by requiring
most customers to have a credit card. "We have no
wiggle room for customer service or fraud," Stokols
company further keeps costs low by holding little
equipment. It provides service through free Wi-Fi
hotspots and the cellphone towers of Sprint and
pays Sprint and AT&T based on customer usage. The
two big carriers can see what websites FreedomPop users
are checking out, but neither they nor FreedomPop can
record or monitor calls as long as only FreedomPop users
are participants. This may add a layer of security for
users if a legal warrant were to be issued.
Carter, who struck a deal with FreedomPop while
overseeing Sprint’s enterprise business, credits
Stokols and his co-founders for being among the first to
recognize that people were overpaying for data.
"They filled a niche for cost-conscious and smart
users," Carter said.
one-third of new customers buy phones from FreedomPop
— mostly refurbished models. That number is falling
fast as it’s pushing customers to get devices from
retailers such as Amazon and Groupon. Reducing inventory
and returns is a cost-saver and valuation-booster.
trying to look more like a software company,"
Stokols said. "We’ve never made a lot of money on
the company rakes in gross profit margins of about 15
percent, or one-third of what’s typical for larger
STORY CAN END HERE)
starting FreedomPop, Stokols sold a video-based dating
app called WooMe to dating website Zoosk. The sale wasn’t
gargantuan, but investors in WooMe, such as Mangrove’s
Tluszcz, decided to issue Stokols several hundred
thousand dollars to pursue either a Groupon-type company
or a telecommunications startup.
said he backed Stokols again because he was the rare
entrepreneur who saw investors and founders as equal.
Stokols could have sold WooMe for less, in exchange for
a bigger share of the cash. He instead sacrificed some
of his own cut to get a bigger price for WooMe and give
its investors a bigger share.
always temptations when buyers are trying to get a
better deal and promising the founder something,"
Tluszcz said. "Within those moments, you can see
who you can trust."
supported Stokols because of his background as an
entrepreneur who’d spent several years at a big
telecommunications firm in Britain. Teaming at the start
with Niklas Zennstrom, a Skype co-founder and major
European investor, lent Stokols additional credibility.
really knew how to do both sides of the fence,"
said David Chao, general partner at FreedomPop investor
DCM Ventures. "If you get just a telecom guy, you
get boxed-in thinking, while an internet guy doesn’t
know how to run a telecom service."
Rogers, a FreedomPop board member who has traveled
Europe with Stokols for business, described the CEO as a
pairing of "surfer demeanor" with "tech
you have an entrepreneur who is the picture of
innovation but can communicate with a carrier, that’s
really powerful," Rogers said.
the boardroom, Stokols is known for going against the
grain. He pushed for international expansion when
investors preferred U.S. domination first. Stokols told
them the company needed more industry relationships, for
instance, to broaden the pool of potential acquirers.
resources hasn’t cost the company because several U.S.
rivals shut down in the last year, with many orphaned
customers moving to FreedomPop, Stokols said.
again diversified the business with a new licensing
scheme for large carriers to launch cheap plans using
FreedomPop’s up-selling and calling technologies. Such
arrangements are in operation in four markets, with
deals expected to become active in five more regions by
the company heads north of 100 employees, Stokols has
tried to preserve FreedomPop’s lean feel. Every
employee, including Stokols, spends at least one day a
month handling customer service inquiries. He has sent
staff to deliver phones and handle issues in the LA
area. Of course, all employees use FreedomPop as their
have to be eating your own dog food," Stokols said.
efforts are meant to foster an open culture. The idea of
rolling over unused data from month to month was
introduced by a customer service agent a few years ago,
tries to show the same dedication to employees as they
show to the company. Early employee Ryan Spillers
recalled Stokols taking a Saturday to buy him a bicycle
after his was stolen outside the office.
that point I was calling him Uncle Steve," Spillers
said. "I don’t know many bosses that would stick
their neck out like that."
to the company’s culture are Fridays at 5 p.m., when a
bottle of tequila tells an entire story.
taking shots of Clase Azul, an organic variety that can
sell for thousands of dollars, means the company is on
track with customer sign-ups. Cheap tequila means it’s
been a weak week. Former employees said they appreciated
the transparency and camaraderie. Nondrinkers take water
could throw out a $1,000 bonus, and they would be more
motivated by the tequila," Stokols said.
is concentrating on two fronts. He wants to expand
awareness, and he’d like to find new ways to generate
the former, the startup is getting shelf space for SIM
cards in Best Buy and other retailers this fall. On the
latter, the hope is adding $4 to $7 in average revenue
per user by selling ads shown to subscribers.
the company recognizes growth could stall as competition
among the Big Four depresses prices in the U.S. and
international carriers smart up to the threat from the
likes of FreedomPop.
are getting closer and closer to accepting and
understanding the culture of Silicon Valley because they
have to: It’s just not OK to stand still,"
FreedomPop board member Rogers said of top service
and Sprint declined to comment. Verizon and AT&T
didn’t respond to requests to comment.
near-bankrupt FreedomPop was hours away from selling to
Sprint in 2015 when a $30 million investment came in
from venture capitalists. Stokols isn’t in a cash
crunch this time.
are equivocal about when to sell, saying that they’ll
weigh any offers, like the one on the table now, but
that they generally want to see the company remain
independent for some time.
they hold out, investors could turn into potential
acquirers. That would include Axiata Group, which has
320 million cellphone subscribers across Malaysia,
Indonesia and eight other countries in Southeast Asia.
Another investor, LetterOne, has connections to leading
cellphone carriers in Russia, Italy and Turkey.
said he avoids using the company’s original slogan —
"Internet access is a right, not a privilege"
— because it stirs unease in an industry that
generates revenue from charging hundreds of dollars a
year for service. But he insists that belief underlies
company’s newest plan yet again is challenging
industry norms. For $49 a year, customers get 17 hours
of calls, 1,000 texts and 1 gigabyte of data a month.
"It’s the most data we can give away for under $5
a month," Stokols said. "We’re getting as
bare-bones as we can."