Are Cheap Wi-Fi Only Phones Right For You?

Bloomberg reported that discount wireless services provider FreedomPop “has been in conversations with potential buyers for months” and could fetch more than $100 million. The company, which is backed by Skype co-founder Niklas Zennstrom, could start receiving formal bids this week and is attracting interest from at least one Internet company and newcomers to the mobile industry.

I’ll bet that most U.S. consumers have never heard of FreedomPop, but its rumored asking price is backed by some impressive momentum. It currently lays claim to 500,000 customers, and at its current pace of doubling its customer base every four to six months it will easily reach the 1-million user mark by the end of the year.

FreedomPop offers Wi-Fi-only plans, but it also buys voice and data traffic on Sprint’s network to provide “hybrid” mobile services. For those plans, it routes users through Wi-Fi whenever those connections are available, leaning on cellular only when necessary. This strategy enables it to offer service at bargain-basement rates compared to the four “tier-one” carriers –AT&T, Verizon, Sprint and T-Mobile – that operate their own nationwide cellular networks. Some basic plans are free, and FreedomPop recently launched a $5-a-month plan that grants access to an impressive network of 10 million Wi-Fi hotspots – many of which aren’t freely available to the public.

Not the only game in town

FreedomPop isn’t alone among service providers leveraging Wi-Fi to offer wireless plans at big discounts. Republic Wireless and Scratch Wireless have pursued similar strategies, Cablevision offers a Wi-Fi-only service for $10 a month, and Google will surely embrace Wi-Fi with its upcoming (only vaguely discussed) mobile service.

None of the Wi-Fi-centric mobile service providers has gained mass-market traction yet, but FreedomPop’s growth undeniably poses a threat to traditional carriers. Consumers looking to trim their monthly wireless bills by switching to one of these upstarts should consider a few important factors, however:

• Handsets. Most service providers that depend primarily on Wi-Fi offer a limited selection of smartphones, many of which are almost antiquated compared to the most current models. FreedomPop, for instance, carries the LG Viper 4G LTE and the iPhone 5, both of which were released in 2012. FreedomPop can also provide service to existing users of certain Sprint phones, however.
• Coverage. The cut-rate mobile virtual network operators (MVNOs), which is industry jargon for those who provide service on other companies’ networks, generally buy cellular traffic from Sprint or T-Mobile, whose networks don’t perform as well and aren’t as expansive as AT&T’s or Verizon’s. Coverage may still be acceptable in uncovered areas where solid Wi-Fi is available, but otherwise you’re likely to get no signal at all.
• Lack of seamlessness. T-Mobile recently rolled out a feature on its iPhone 6-8 allow users to move between Wi-Fi and cellular seamlessly and automatically, eliminating the need to end a call and switch from one connection to another while on the go. Carriers are just beginning to tinker with those seamless handoffs, though, and the feature is available on very few phones. Until that functionality becomes more common, users with the cut-rate providers are likely to drop calls as they move from Wi-Fi hotspots to cellular coverage.
• Quality. While the disruptive new MVNOs can provide quality service through solid Wi-Fi connections, users of both FreedomPop and Scratch Wireless have complained of inferior voice calls, particularly when those calls are made through traditional cellular networks. Voice quality will surely improve as technologies evolve, but this could be a deal breaker for users who talk on their phones often.
• Convenience. Not only are most phones incapable of switching from Wi-Fi to cellular seamlessly, even moving from one hotspot to another can be a hassle: Users often have to log in and accept terms and conditions before connecting to Republic’s back-end network, adding a substantial hurdle to the simple task of sending a text or making a call.

Upstarts such as FreedomPop and Scratch Wireless are still very small compared to the entrenched carriers, but they are clearly well positioned to disrupt the industry. France’s Free Mobile, in fact, has employed these strategies to force its much bigger, cellular-centric counterparts to lower their prices substantially.

Making the Call

Whether a service provider that depends primarily on Wi-Fi is the right choice for you, though, depends on a few factors. Truly mobile consumers who need a constant connection would be wise to value the always-connected (OK, almost always) service that only the major carriers can offer. Similarly, those who talk on their phones a lot and require some mobility should probably stick with the tier-one options.

But for budget-minded users who almost always have access to Wi-Fi – at home, at the office, at coffee shops and bars – one of these innovative upstarts might be good way to slash their monthly mobile budget substantially. And if these new service providers continue to gain traction, it’s likely to mean lower service prices for most of us regardless of which carrier we’re with.