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Scratch Wireless Eyes International Expansion

Sarah Thomas
3/26/2014
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SAN ANTONIO -- CCA Global Expo -- Scratch Wireless may be a small startup, but it has big ambitions. The Sprint MVNO says it plans to take its infrastructure-free, WiFi-first service model to other parts of the world, potentially starting in Asia.

Speaking at a Fierce Wireless breakfast here on Wednesday morning, Scratch Wireless CEO Alan Berrey said he wants to replicate his business model -- a completely free consumer wireless service -- anywhere in the world where regulation will allow.

It would be able to do that because Scratch doesn't own any cellular towers, doesn't rely on any vendors for hardware, and its entire telephone infrastructure is built completely on customized open-source code using any open WiFi access points. It does, of course, pay Sprint Corp. (NYSE: S) for cellular connectivity, but becoming a mobile virtual network operator (MVNO) allowed it create a telephony company essentially overnight with no capex required. (See Why WiFi-First Works for Wireless and Is WiFi the New It Network?)

Berrey wouldn't share any subscriber numbers for the service, which launched in December, but said that two-thirds of its customer base solely uses WiFi, meaning they never pay a dime, while one-third uses cellular to fill in the gaps. For its entire customer base, 91% of calling is over WiFi, 75% of the 1,200 text messages sent per month are over WiFi, although they are free on cellular as well, and 86% of the average customer's time is spent on WiFi.

"Our model is to take WiFi to the extreme and utilize it for as much as possible," Berrey explained. "We can essentially replicate Scratch in Hong Kong or Mexico or anywhere, and it costs me zip to create another mobile offering any other place in the world."

So where to first? Berrey didn't have anything specific to announce, but he said he is in conversations with operators in other countries. Scratch's largest investors are in Asia, so that would be a logical place to start.

In the meantime, it's still proving out its model in the US. A limitation of Scratch is that there is no handoff between WiFi and cellular. While that's fine for those customers who want to avoid paying for cellular, it means any call initiated on WiFi will drop if the user moves away from the access point. It's a limitation that applies to Sprint's own WiFi calling service, and is something fellow Sprint MVNO Republic Wireless addressed in its latest device, the Moto X. Berrey said Scratch will also have a handoff solution in its next device, but didn't say which phone or when it would be launched. (See Taqua Lets Mobile Users Talk Over WiFi and Republic Wireless Revamps Its WiFi Handoff.)

Scratch is far from the only WiFi-first operator. It's a new trend that's popped up as WiFi has improved, and operators like Sprint make it easy to wholesale cellular backup. But Berrey says Scratch is profitable on a per-customer model -- it makes most of its money on device sales and cellular usage -- and, if you'll excuse the pun, has only scratched the surface on where it can go next.

"We hope to be disruptive," Berrey said. "Our focus right now is to blow it out in the US, but we're also already in conversations with other countries."

— Sarah Reedy, Senior Editor, Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
3/26/2014 | 2:58:37 PM
Re: WiFi usage
Sounds like Scratch is operating on a freemium business model – give away the Wi-Fi service, and make money on self-service and device sales. Is that correct?
Sarah Thomas
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Sarah Thomas,
User Rank: Blogger
3/26/2014 | 11:42:17 AM
WiFi usage
Kinda crazy that Scratch's WiFi numbers are so high. It only uses readily available WiFi APs, so that suggests that most people are using Scratch primarily in their homes or maybe at work (although their users tend to be younger). Scratch isn't yet working with a WiFi aggregator like fellow panelist Devicescape, but it's very interested in doing so. I bet we'll see them strike a deal soon.
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