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Last quarter most of Sprint’s of subscriber growth was driven by its virtual carrier partners, so new CEO Marcelo Claure may be figuring it’s time to buy some of those operators up. According to a report in USA Today, Sprint is in talks to acquire one of its biggest mobile virtual network operators (MVNO) FreedomPop, but when I spoke with FreedomPop CEO Stephen Stokols, he said parts if not all of the report are false.
USA Today‘s unidentified sources said that talks are fluid and could lead to a few possible outcomes: full acquisition of FreedomPop, which would value the MVNO between $250 million and $450 million; just an investment of around $200 million; or no deal at all. Stokols, however, said that while FreedomPop is in formal talks with “a few” companies about a potential acquisition, Sprint is not one of them.
“We’ve gotten several inquiries on the M&A side, but nothing official from Sprint,” Stokols told me in a phone conversation.
Stokols added that FreedomPop has had several informal conversations with other companies about a potential acquisition or investment, though he wouldn’t say if Sprint was one of them. But Stokols stressed that none of the discussions had progressed to the level that USA Today described, with terms and prices on the table.
Sprint spokesman Scott Sloat told me, “Sprint has no comment on rumors and speculation.”
Regardless of whether Sprint is truly interested in acquiring FreedomPop, the carrier definitely has a financial interest in the Los Angeles startup. FreedomPop has been the most active of the Sprint MVNOs, which buy Sprint’s voice and data services wholesale and sell to consumers under their own brands.
Though FreedomPop hasn’t released any recent subscriber numbers, it’s growing fast enough that it’s begun sourcing its own budget smartphones from overseas. The company’s core offerings are freemium and heavily discounted voice and data plans, but the MVNO seems to be constantly layering on new features and services to its plans. On Wednesday, FreedomPop announced new international calling plans.
Sprint has a long history of these sort of dealings with its MVNOs. Both Sprint and Nextel (which merged with Sprint in 2006) owned stakes in their respective MVNOs Virgin Mobile and Boost Mobile, and both carriers wound up fully taking over those virtual operators, making them major parts of their prepaid operations.
Sprint still maintains both the Virgin and Boost brands today, targeting each at different demographic segments. Whether FreedomPop would overlap or conflict with Boost and Virgin’s markets remains to be seen, but FreedomPop’s typical customer isn’t exactly your typical wireless subscriber. FreedomPop users tend to be both budget-minded and tech-savvy, willing to exchange big expensive mobile data buckets for FreedomPop’s limited but free data allotments and the reliability of 2G voice calling for FreedomPop’s free or cheap VoIP services.
While buying FreedomPop might help Sprint convert a big portion of wholesale net subscriber additions into retail connections (last quarter it added 827,000 of those connections), they wouldn’t exactly be the most valuable customers from a revenue standpoint.
About half of FreedomPop’s customers pay nothing at all in any given month, using up the 500 MB, 500 text message and 200 voice minute freemium allotment the MVNO gives to each customer. And while the other half of its customers are spending some money each month, we’re talking a few dollars, not the double-digit average revenue per subscriber Sprint is accustomed to from prepaid customers.
Being a very lean operator is part of FreedomPop’s business model, but as it adds more services to its menu, it’s hoping to turn more of its customers into paying subscribers. The new international plans FreedomPop announced today are a good example. FreedomPop is offering 100 minutes of free international calling to 30 countries to its smartphone customers, but it will offer bigger-bucket international plans starting at $4.99 a month.
FreedomPop is also offering an international number service, which lets customers take on a local number from another country. So if you’re a FreedomPop customer in San Francisco but have a lot of friends and relatives in Mexico, those contacts could dial your Mexico number without paying international fees and still connect to your phone in SF. FreedomPop is offering that service for $4.99 a month as well.
Liberty smartphone image courtesy of FreedomPop. This post was updated at 9:15 AM PT with FreedomPop CEO Stephen Stokol’s comments.