NetZero became a mobile virtual network operator (MVNO) in March, buying time on Clearwire’s WiMAX. It even stuck with to its free-access dial-up roots by offering a gratis 200 MB for one year to any customer who buys a 4G hotspot or dongle. Its paid plans, however, look much more like the traditional mobile broadband offerings: starting at $10 for 500 MB and scaling up to $50 for 4 GB.

The new gifting features, however, throw that traditional model for a curve. Every customer – even the ones of free plans – will get the 1 GB data allotment, which they can award in 200 MB increments to any other NetZero customer with a Facebook account. Though a customer can’t “gift” himself any of that data, his or her friends certainly can. Each customer can receive up to five 200 MB awards a month from Facebook friends for a total of 1 GB. That means for a monthly subscription of fee of exactly zero dollars, a NetZero customer could rack up as much as 1.2 GB of data to use each month.

The MVNO space has become a fascinating laboratory of new mobile voice and data business models. The recently launched FreedomPop and Solavei have been exploring the concept of using social networks to create stickiness with their brands, to virally market their services and as a platform on which to build other IP services. Karma, another Clearwire MVNO that has yet to launch, is pioneering the concept of “social bandwidth,” which encourages customers to share their connections with strangers in exchange for data bonuses.

NetZero is taking pieces of each of those strategy, though its implementation is all its own. Instead of building its own social network, it’s relying on Facebook to provide that friendship glue. The promise of free data not only keeps its customers engaged with the service – with no contracts they can leave at any time – but encourages communities of friends to engage with NetZero and recruit new members since those friends are ultimately the source of monthly data bonuses.

The question is whether giving away that much free data is a sustainable business model, especially if many of NetZero’s customers aren’t bringing in any revenue. NetZero has also the cut the price of its modems in half since its March launch. You could look at that as a temporary incentive coinciding with the launch of its new sharing program. Or it could be a sign it hasn’t had much luck in bringing customers on board. Slashing hardware costs and giving away gobs of free data is one way to attract customers, but I doubt it’s a strategy NetZero can keep up indefinitely.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Mobile 2012 and beyond
• CES 2012: a recap and analysis
• 12 tech leaders’ resolutions for 2012

Customers can bring their total monthly data allotments to 1 GB via two means: by adding other FreedomPop subscribers to the carrier’s internal social network of users and through special promotional offers such as filling out an online survey or watching a video ad. The social element, however, isn’t a mere referral service in which you get a one-time bonus for bringing a new customer to the network. You keep receiving the 10-MB per-person bonus as long as your contacts remain active subscribers to the network (and they remain your friends).

Right now there is a limit to how much freebie data a customer can earn, capped at 500 GB. But according to FreedomPop COO Steven Sesar, FreedomPop eventually plans to ease that restriction. Sesar said FreedomPop will not only allow customers to rack up data bonuses from more friends, but it will overlay onto its social platform more value-added services, the of use of which will also accrue extra megabytes. One of the ideas FreedomPop has in the works is its own VoIP service. Eventually customers will be able to trade data like currency, allocating unused megabytes to friends.

We’ve already detailed many of the aspects of FreedomPop’s unique freemium business model and its wholesale relationships with Clearwire and Sprint. However more specifics on its plans and pricing emerged for this week’s launch:

• FreedomPop is offering customers two modems: a mobile hotspot and USB dongle. Both devices are technically free though customers have to put down a $49-$89 deposit, but it’s fully refundable. The company will begin selling sleeve modems that fit over the iPod Touch and iPhone 4 and 4S in coming weeks.
• Though FreedomPop isn’t limiting what you consume with your free data allotment, it is putting restrictions on how fast you consume it. Though the specific details aren’t spelled out on its website, it appears non-paying customers won’t have access to the WIMAX network’s full mobile broadband speeds. FreedomPop is selling a “Speed Plus” service for $3 a month, which doesn’t throttle speeds and prioritizes packets over those of non-paying customers.
• Apart from the Speed Plus plan, FreedomPop is selling two prepaid data plans both of which undercut the prices charged by the major operators. The first comes with 2 GB of data for $18 a month, while the second has 4 GB for $29 a month. Customers on those plans pay 1 cent for each megabyte of overage, while on the free and $3 plans customers pay 2 cents for each additional megabyte.
• The beta is open to all comers, but FreedomPop has an upper limit to the number of customers it will accept. Sesar wouldn’t identify the specific number, saying only it was restricted to the number of devices the MVNO has in inventory.
• Another reason for limiting subscribers in the beta is that FreedomPop can’t yet offer nationwide service. Since it’s solely using Clearwire’s WiMAX at launch, it’s limited to that operator’s 4G footprint, which covers roughly one-third of the US population.
• Next year, FreedomPop will switch wholesale partners, trading Clearwire’s WiMAX for Sprint’s new LTE network. Sprint’s 4G service won’t be complete at that point either, but FreedomPop will also tap into Sprint’s 3G CDMA network giving it near nationwide coverage.

Most interestingly, FreedomPop isn’t restricting customers to a single device. Seras said that he expects families and even some individual subscribers to sign up for two or more devices, and each device will get access to its own separate free 500 MB allotment.

The potential for abuse, though, is obvious. A customers could order multiple devices and spread his or her monthly usage among them. That customer could even rack up more free data on each device by making each device “friend” the others on FreedomPop’s social network. Sesar, however, said FreedomPop will restrict that kind of behavior and will shut off customers that have too many devices linked to a single account or credit card.

Sign image courtesy of Flickr user frankh

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• CES 2012: a recap and analysis
• 2012: Data, spectrum and the race to LTE
• New solutions for the evolving mobile network

FreedomPop first announced plans to offer an iPhone sleeve back in March and since then it has been gradually releasing details of its innovative business strategy. The all-data mobile virtual network operator (MVNO) will resell first Clearwire’s WiMAX and then Sprint’s CDMA and LTE data services, but only after customers use up their monthly allotment of free data.

Subscribers start off with 500 MB of free mobile broadband and will be able to increase that total to 1 GB either by trading unused megabytes with friends or earning more data by referring customers and buying value-added services from FreedomPop. Only after customers exceed their accrued free allotment, do they start paying for access, starting a rate of one cent per megabyte. The virtual carrier hasn’t yet revealed what all of those services will be, though VP of Marketing Tony Miller has confirmed to GigaOM that one of them will definitely be a VoIP.

That voice service is key because it allows FreedomPop to behave like a full-fledged mobile carrier even though it’s technically a data-only MVNO. The sleeves it sells for the iPhone and iPod touch are essentially mobile hotspots that double as extra battery packs. They connect multiple devices to 4G including the devices it attaches to, but FreedomPop doesn’t control the iDevices themselves. In order to get voice services for the iPhone, customers would have to sign up with another carrier or use the iPhone as a data-only device with a VoIP service – in other words, use the iPhone as an expensive iPod touch.

The Touch isn’t the last device FreedomPop plans to connect with a wraparound shell. It has said it is developing products for the iPad and other smart devices. FreedomPop still hasn’t revealed a specific launch date, though it plans to open up its service to beta users this summer.

Here’s a video FreedomPop released detailing the new iPod sleeve’s capabilities:

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• CES 2012: a recap and analysis
• 12 tech leaders’ resolutions for 2012
• Updated: Forecast: global mobile subscribers, 2010-2015

Some of you may be crying foul right now, but in fairness to FreedomPop, it has never said every customer will get an automatic 1 GB bucket every month – at least not to us. In an interview with GigaOM in March, VP of marketing Tony Miller said FreedomPop aimed to give away a large block of free data each month, and while its target was 1 GB, it wasn’t set in stone. In addition, FreedomPop’s plan was to turn data into a digital currency, which customers could earn and trade. Customers could earn more megabytes by referring people to FreedomPop and by signing up for the carrier’s still unidentified value-added services. Also, customers who don’t use up their monthly data allotments can transfer their extra megabytes to friends.

The basic structure of its free data model is now starting to emerge. According to its Website, customers who order the iPhone sleeve will get 500 MB free each month, but it appears customers can increase the size of their free buckets to 1 GB a month, though FreedomPop isn’t saying how just yet. After customers use up their free buckets, they will be charged at a base rate of 1 cent per megabyte.

The Freedom Sleeve iPhone shell — which triples as a spare iPhone battery and a mobile hotspot — will tap into Clearwire’s WiMAX network so coverage will be limited to its 72-market footprint. While FreedomPop is taking pre-orders for the device online, it is also checking addresses to make sure you’re in a 4G market. That makes sense since FreedomPop doesn’t have a 3G — or any other — network to fall back on. You’re either in WiMAX coverage or you have no service.

The virtual operator is also scrapping the original deposit model it described. You buy the sleeve upfront for $99, though it seems that at any time you can return the sleeve in good condition for a refund, which amounts to the same thing. TechCrunch is reporting that FreedomPop is making the change for accounting reasons, allowing it to manage the device orders as revenue, not deposits.

When ordering the device, FreedomPop guarantees that you will receive your sleeve “before the rest of the world.” That’s not terribly helpful, and the wait could wind up being a few months. FreedomPop has said it would go live in the third quarter, which begins July 1, and in a press release issued Thursday it said would launch its beta service sometime this summer.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• CES 2012: a recap and analysis
• 12 tech leaders’ resolutions for 2012
• Connected world: the consumer technology revolution

According to the company, FreedomPop plans to discard every vestige of the traditional carrier business model and adopt the strategy of a Web startup. It’s not only giving away bandwidth but wants its customers to treat megabytes as a currency they can earn and trade. Instead of making its money through 4G access, FreedomPop is breaking one of the biggest carrier taboos: It plans to sell services over a free dumb pipe.

Turning 4G into a (nearly) free commodity

In an interview with GigaOM, VP of marketing Tony Miller laid out many of the pieces of FreedomPop’s intricate strategy that have so far gone unreported. The mobile virtual network operator (MVNO) is creating a social network as well as a 4G service; it wants to connect devices that have never seen mobile broadband connection; and it will sell value-added services on top of those connections, possibly even voice. Here are the details:

• FreedomPop plans to give a large block of data away for free. It’s targeting 1 GB at launch, though Miller said it may scale back or increase that allotment before it goes live in the third quarter. Miller said this wouldn’t be a onetime gimmick or promotion: The free bucket would kick in each month. As previously reported, FreedomPop will charge 1 cent for every megabyte over that free cap.

• The MVNO plans to make capacity a currency that customers can earn and trade. Customers will get bigger free data buckets for every customer they refer to the service. And in the future, Miller said, FreedomPop plans to make that capacity transferable. Say you’re running up against your 1 GB cap, but a friend who also happens to be a FreedomPop customer may be well short of hitting his cap. That customer can give you a portion of his free data allotment, allowing you to keep surfing gratis.

• FreedomPop plans to build a larger social network around those bandwidth-swapping capabilities. Customers will be able to form social communities tied to their device, sharing their location, status and other presence information with one another.

• The carrier plans to sell value-added services to its customers. Miller wouldn’t reveal the specific services, but he likened its strategy to the freemium model used by Internet companies: The core services — access and social networking features — will be free, but FreedomPop will layer on paid applications. Miller also said the company is considering launching its own VoIP service but had made no final decisions.

• While the WiMAX shell for the iPhone 4 and 4S has gotten the most attention, Miller said FreedomPop also hopes to launch this year with a mobile hotspot and USB dongle. The shell will act as a mobile hotspot distributing its mobile broadband connection to other devices through Wi-Fi, and it will run off its own battery, which can perform double duty as an iPhone charger. The company is also designing a shell for the iPod touch and in the future plans to connect other smart devices — and not necessarily just smartphones, Miller said.

How on earth will it make money?

Miller stressed that 4G access is only a minor part of the revenue equation. FreedomPop will get cheap WiMAX connectivity from its wholesale partner Clearwire, and it can afford to give most of that access away, he said. Customers who don’t use much data each month will cost FreedomPop little. Customers who consume a lot will quickly move into metered data, which allows the carrier to easily recover its costs.

The customer that poses a problem initially is the one that uses his entire cap each month without exceeding it, Miller said. Eventually those mysterious value-added services Miller referred to will turn those customers into profitable investments. Miller wouldn’t even give a hint as to what most of those services would be, though he did talk up the potential of VoIP.

“Speculatively this is something we would consider,” Miller said. “We’re not coming off the gate with a ‘cut the cord completely’ strategy. We’re launching first with mobile broadband. But down the road a VoIP service could be a possibility.”

Considering that Skype co-founder Niklas Zennstrom is spearheading the launch of FreedomPop through his venture capital firm Atomico, you would think VoIP has to be a strong consideration. Miller himself pointed to its planned launch of a WiMAX shell for the iPod touch, which FreedomPop or another over-the-top VoIP provider could easily turn into a softphone. “Some of these devices that were never meant to be phones can easily be transformed into them,” Miller said.

Miller also said FreedomPop will avoid the huge customer acquisition costs carriers face by taking the same viral marketing approaches as an Internet company. Its customers will beget more customers, drawing them in by the network’s social features and the promise of more free bandwidth. Miller said FreedomPop plans to grow the same way as Dropbox, which grew exponentially by rewarding referrers with more online storage.

“From an economics perspective, we need to look like a Web company,” Miller said. “That means customer acquisition costs can’t be $20 a pop.”

Will it work?

FreedomPop is turning the entire carrier business model on its head. In the data world, carriers have long tried to sell services, but for the most part they have become dumb bit pipes. By giving away access and focusing on services, FreedomPop may well succeed where the operators failed. But it’s also taking a big risk.

FreedomPop is betting its services will somehow be more appealing than any other over-the-top services available through an open broadband connection. It could block access to alternate VoIP providers or whatever the over-the-top equivalents are to its other unnamed services, but then it winds up playing the carriers’ game. But if it does provide unrestricted access to anything and everything out there on the Web and in the iPhone app store, its customers might just take the free data and run.

Sign image courtesy of Flickr user frankh; commodities image by stock.xchng user Lotus Head

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Tablet market to hit over 377 million units by 2016
• CES 2012: a recap and analysis
• 12 tech leaders’ resolutions for 2012