Bloomberg News

Zennstrom Said to Plan Skype-Like Wireless With FreedomPop

December 16, 2011

(Updates with wireless industry data in third paragraph.)

Dec. 15 (Bloomberg) -- Niklas Zennstrom, co-founder of Skype Technologies SA, is backing a startup called FreedomPop that plans to offer free basic wireless service for laptops and smartphones, according to two people familiar with the matter.

FreedomPop is already testing the service with select U.S. users and plans to introduce it next year, said the people, who wouldn’t be identified because the plans aren’t public. Customers will get a certain amount of wireless Web access for free and pay for additional services, the people said. About 10 percent of users may eventually pay fees, one person said.

The effort may present a challenge for companies such as Boingo Wireless Inc., which sells Web access through Wi-Fi hotpots, and other telecommunications companies, which have relied on wireless growth to bolster revenue as traditional phone-service sales slide. U.S. wireless revenue totals about $165 billion, according to the trade group CTIA-The Wireless Association.

FreedomPop, based in Los Angeles, is the latest effort from a serial entrepreneur. Zennstrom, who is Swedish, co-founded Skype with Janus Friis and later sold the company to EBay Inc. for an eventual $3.1 billion. The two also started the music- sharing website Kazaa and last year opened an online music subscription service called Rdio. Zennstrom is an investor and adviser for FreedomPop, not an executive, the people said.

“He certainly has cachet,” Will Stofega, program director at consultant IDC, said in an interview. “He is considered an innovator and a visionary. He has insights and connections. It gives them entry in with other people in the industry.”

Right, Not Privilege

Zennstrom hasn’t discussed FreedomPop’s business plan publicly. His involvement was disclosed last week as the company announced a partnership with LightSquared Inc., which is building a U.S. wireless network.

“The Internet is a right, not a privilege,” Matt Ingrid, the company’s chief operating officer, said in a statement at the time. “With the economic efficiencies delivered by LightSquared’s wholesale business model, we can achieve our objective to deliver flexible high-speed wireless access to anyone at a fraction of the cost and inconvenience seen in today’s market.”

Tony Miller, a spokesman for FreedomPop, declined to discuss the company’s planned services in detail and said it would refine its business model in early next year.

LightSquared plans to charge wholesale customers such as Sprint Nextel Corp. and Best Buy Co. about $7 a gigabyte for the high-speed Internet service, CEO Sanjiv Ahuja said in an interview last week. That will allow partners to offer a range of services at lower costs than they do now, he said.

Keeping Costs Low

With his latest venture, Zennstrom aims to shake up the communications industry the same way he did with Skype, which began by letting people make calls between PCs for free, the people said. Skype and other services that use what’s known as Internet Protocol, or IP, technology have helped push down the cost of telephone calls, particularly international calls.

Skype applications are now available for Apple Inc.’s iPhone and devices that run Google Inc.’s Android. The apps allow customers to call other Skype users for free, though they pay for calls to landline and wireless phones without Skype. Mobile-phone users pay for wireless-data plans to use Skype.

Unlike Skype, which makes calls free, FreedomPop is aimed at making access to the Internet over wireless free, the people said. With LightSquared or another wireless partner, the company’s service is supposed to be available more widely than the Wi-Fi hotspots of Boingo in many airports or those sometimes offered for free by municipalities. FreedomPop users will have to pay if they want more than certain amount of monthly data, the people said.

Low Costs

Wireless data services account for an increasing share of the wireless industry revenue. Annual wireless-data revenue was about $55 billion, or 34 percent, of all wireless revenue as of June, up from 10 percent in 2006, according to the CTIA.

FreedomPop aims to keep internal costs low so it can offer free or low-cost services, one person familiar with the matter said. The company plans to provide customer care online and keep staff to a minimum, the person said.

One way FreedomPop may offer its service is with a dongle, or small piece of hardware, that could plug into a laptop or smartphone, the person said. The device will act as a modem to communicate with the wireless network of LightSquared or another partner, the person said.

FreedomPop plans to distribute the devices through retailers, who may require a deposit of about $49, the person said. The deposit will be returned to customers who cancel the service and return the hardware.

FreedomPop plans to offer wireless Web access for laptops and smartphones first and may later add voice services, said another person.

--Editors: Peter Elstrom, Jillian Ward, James Callan

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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