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Why WiFi-First Works for Wireless

Republic Wireless, Scratch Wireless, and other new entrants are showing there's an appetite for a WiFi-fueled alternative to expensive mobile data plans.

Sarah Thomas

December 30, 2013

6 Min Read
Why WiFi-First Works for Wireless

In the US, mobile data prices are among the most expensive in the world, and WiFi is among the most prevalent. At the intersection of these two trends is a number of new startups hoping to capitalize on both.

Republic Wireless kick-started the movement of offering a WiFi-first mobile service when it launched in 2012, and its success thus far has inspired a number of new mobile virtual network operators (MVNOs) to go a similar route. TextNow and Scratch Wireless are two other new launches, both of which are offering "cellular offload" to Sprint Corp. (NYSE: S)'s network. (See Carrier WiFi: The Key People, Top 10 Carrier WiFi Movers & Shakers, and Touring Sprint's Well Oiled MVNO Factory.)

Scratch Wireless, launched in October, only uses the WiFi that's readily available to consumers today, such as in their home and office, but Republic Wireless also pulls in Devicescape Software Inc. 's network of millions of hotspots. Devicescape CMO David Nowicki says that Republic is validating the WiFi-first, cellular backup model, and he expects to see many more launches in the same vein.

"Republic is one of those companies that not only all the operators in the US talk about at conferences, but all the European operators are talking about them as well," he says. "You'll see more of that coming."

The reason why is simple: As analyst Whitey Bluestein explains it, the chances are if you're a wireless user in the US, you're already defaulting to WiFi to keep costs down. Why not use it exclusively, or at least primarily? These startups are banking on that behavior and offering consumers a service that runs primarily on WiFi for low to no cost, only going up when the user is out of range and on the cellular network.

The MVNO's motives aren't entirely pure, of course. The wholesale prices they pay for mobile broadband are not exactly cheap, especially if they are paying by the megabyte. It behooves them to keep their customers on WiFi, just as it benefits their customers to use the free network.

"The viability of Republic Wireless and others like them comes down to the ratio of data usage on their WiFi networks (home and office) versus on the MNO's network," Bluestein writes in an email to Light Reading. For Republic, it's about 70% WiFi to 30% cellular. That's how it can maintain its business model, Bluestein says. "They're just passing along the savings of WiFi, and building a business model around it."

Figure 1:

Scratching the surface of WiFi
Cellular fallback is an option for Scratch Wireless, too, but it's encouraging its customers to stick entirely to WiFi in its bid to offer the first totally free wireless service. The carrier sells the $269 Motorola Photon Q and then there are no other costs -- provided the user stays on WiFi. It's a vastly different model than those MVNOs that are counting on social sharing or ad viewing in exchange for minutes. It's simply free.

For those that do need to go on cellular, Sprint's network is available in day or month passes, but the amounts of data offered are pretty paltry. For example, you can get 25 MB for $1.99 per day, plus $1.99 for an accompanying voice plan, or 200MB of monthly data for $15.99 plus $15.99 for 250 minutes of cellular voice for one month.

According to Scratch's VP of Marketing Jon Finegold, the user base its targeting is young people -- age 24 down to 11 -- that use WiFi a large percent of the time and love the idea of a cell phone, but either don't have one yet or can't lay out $100 per month for the life of the contract. They also tend to use data and text much more than voice, even though Finegold says Scratch's VoIP quality can be even better than on cellular.

Right now, less than two months after its launch, the bulk of Scratch's revenue is coming from device sales, but CEO and co-founder Alan Berrey says it also makes money on cellular usage, as well as "the monetization that goes on in the cellular ecosystem already" through things like browser page loads, app downloads, existing ads, and accessory sales.

"We built the company not to be a little cheaper, but to be free," Berrey says. "We stuck our flag in free and will live in die in free."

The handoff issue
Both Scratch and Republic have had to tweak their service to make it work in a blended WiFi and cellular world. Berrey says that Scratch spent a lot of time and energy in modifying the Android operating system on the Moto Photon Q so that WiFi would run identically as it did on cellular with the same number on both. But, for Scratch, if a customer moves to cellular when chatting on the phone, the call will drop. Finegold claims this isn't an impediment for its customers, since the bar for voice quality has been set so low.

"We didn’t want to make it automatic," Finegold says. "That is another pain point in the cellular industry: not only is it crazy expensive to have a smartphone plan, but you get charged for things you weren’t expecting. We wanted to address that as well."

For Republic, which is pitching more of a WiFi and cellular-combined service, handoff was a priority. The company spent ample time and filed for several patents to improve its handoff process, which it admits was unacceptable in the first iteration of the service. On the Moto X, its latest LTE device, Jim Mulcahy, EVP and general manager of Republic, said they fixed four things: device quality, call quality, MMS support, and voice handoff. (See Republic Wireless Revamps Its WiFi Handoff.)

Handoff was the most tricky. Mulcahy says that existing standards for voice weren't up to snuff yet, plus Sprint operates a CDMA network, so UMA handoff wasn't available. The problem they ran into was that unlicensed spectrum is unpredictable and can be thrown off if the user walks behind a microwave, for example.

So, Mulcahy's team moved the handover to the cloud so that when a call is made, it sits on a server. This allowed them to relax the engineering constraints on how quickly the call had to be handed off. He says it introduced some latency, but Republic's customers haven't noticed or haven't cared.

"One thing that makes Republic so powerful is you don’t have to think about it," Mulcahy says. "It's very important you hit file, hit send, and it just works. I don’t want to think about it because if I do, it creates friction and isn't worth the money."

It's still early days for these startups, but as WiFi gets more attention from operators, vendors, and third parties next year, the hope is that their businesses will continue to get stronger. Will they unseat the tier-one wireless operators? Probably not, but that's not necessarily their goal. Even a niche play is good business in the crowded US market, and with increasing data prices, that niche should continue to grow.

"Regardless of your service provider -- MNO or MVNO -- chances are if you have a smartphone, you're using WiFi and thereby keeping cost down," Bluestein says. "The quality and availability of WiFi is not only a viable option but I suspect, the more mobile data people use, the more they're using or should be using WiFi."

— Sarah Reedy, Senior Editor, Light Reading

About the Author(s)

Sarah Thomas

Director, Women in Comms

Sarah Thomas's love affair with communications began in 2003 when she bought her first cellphone, a pink RAZR, which she duly "bedazzled" with the help of superglue and her dad.

She joined the editorial staff at Light Reading in 2010 and has been covering mobile technologies ever since. Sarah got her start covering telecom in 2007 at Telephony, later Connected Planet, may it rest in peace. Her non-telecom work experience includes a brief foray into public relations at Fleishman-Hillard (her cussin' upset the clients) and a hodge-podge of internships, including spells at Ingram's (Kansas City's business magazine), American Spa magazine (where she was Chief Hot-Tub Correspondent), and the tweens' quiz bible, QuizFest, in NYC.

As Editorial Operations Director, a role she took on in January 2015, Sarah is responsible for the day-to-day management of the non-news content elements on Light Reading.

Sarah received her Bachelor's in Journalism from the University of Missouri-Columbia. She lives in Chicago with her 3DTV, her iPad and a drawer full of smartphone cords.

Away from the world of telecom journalism, Sarah likes to dabble in monster truck racing, becoming part of Team Bigfoot in 2009.

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