For people tired of paying $40 or more a month for Internet, a new startup offers enticing tradeoff: free service with limits on how much YouTube or Netflix videos they can watch.
FreedomPop, which launched its home Internet service this week, is delivering broadband for free -- or as little as $10 per month, depending on how much data subscribers want to use. The wireless service comes with limits on online video consumption and is slower than most connections from cable companies.
But FreedomPop is betting that consumers are willing to sacrifice speed and unlimited Internet consumption for substantially lower monthly broadband bills.
“My goal is to disrupt the market and introduce competition that brings down prices to consumers,” said FreedomPop chief executive Stephen Stokols. “We're looking to shake up home broadband in a big way."
FreedomPop's free service comes with a cap that restricts users to mostly email and basic Web surfing. Stokols said it would still be attractive to the lower end of the market, especially customers who are still using dial-up because they can't afford broadband subscriptions. About a third of the country does not subscribe to high-speed Internet at home, in large part because they say they can't afford it, surveys show.
FreedomPop's higher-tier service lets users watch dozens of YouTube videos and about 20 Netflix movies each month for $10, Stokols said. The company will generate additional revenue by charging customers for “speed boosts” and other add-on services, he said.
But as Internet users watch more online videos on faster connections, some analysts are skeptical that FreedomPop and other startups like it will have much impact on the market.
Blair Levin, a fellow at the Aspen Institute and former lawyer for the Federal Communications Commission, said the startup's price “is a very compelling proposition." Yet most customers are clamoring for ultra-fast Internet connections that can support the latest advancements in technology, like online education, online medicine and video-on-demand, he said.
This summer, for example, Google unveiled its first ultra-high speed Internet service, known as "Google Fiber," to residents of Kansas City, Mo., and Kansas City, Kan., delivering broadband connections up to 100 times faster than what many Americans receive today.
“I don't think people want to go back to slower speeds,” Levin said.
And many homes now have multiple family members simultaneously streaming HD movies and browsing the Web, according to Karl Bode, editor of the industry blog Broadband Reports. Even a small family would quickly exhaust FreedomPop's data limits, he said.
"While the price is nice, the usage caps and connectivity issues could prevent this from being a serious competitor," Bode said. FreedomPop "is really aiming at the bargain basement, light usage set anyway," he said.
The wireless industry -- and more recently, cable companies -- has offered discounts to customers who are willing to accept restrictions on their Internet consumption. FreedomPop is trying to undercut them by charging lower prices, made possible by the falling wholesale cost of mobile bandwidth, according to Dave Burstein, editor of the industry blog DSL Prime.
About half of the U.S. population consists of light Internet users who consume less than 6 gigabits per month -- or the equivalent of about two high-definition movie downloads, according to Stokols. Those customers shouldn't be forced to pay full price, he said. The average customer would save about $400 a year by subscribing to FreedomPop, he said. The startup lets users share Internet access with others to receive credit for more use.
This fall, FreedomPop introduced a mobile service that lets iPod touch users get free Internet access after paying for a $99 case that serves as a Wi-Fi hotspot. The company's wireless service is still not available in many parts of the country, but Stokols said FreedomPop is partnering with Sprint to provide nationwide 4G wireless service next year.
FreedomPop has received $9.5 million in funding and is backed by Skype co-founder Niklas Zennstrom.