Scratch stops selling to new users – storm clouds ahead for WiFi-first?

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WiFi has so often been seen as a weapon for disruptive organizations to up-end the wireless services status quo, only to be hijacked by the mobile operators and telcos after all. That happened most famously in the municipal WiFi craze of a decade ago, which started with telcos taking city authorities to court for building networks to deliver low cost connectivity, and ended with the same operators using WiFi to deliver their own services and to offload data from cellular networks.

Is the same about to happen with WiFi-first mobile services? These were announced by a number of MVNOs, especially in the US, and seemed to present a serious challenge to the cellular players with their low cost tariffs. These undercut the MNO’s fees by pushing the user by default onto WiFi, only moving to the cellular MVNO network when there was insufficient WiFi signal. Yet since Scratch Wireless, FreedomPop and Republic Wireless set the trend, some of the MNOs, such as T-Mobile USA and Sprint, have themselves adopted the same tactic to ease the strain on their cellular networks. And with many cellcos supporting WiFi Calling, the start-ups’ proposition is less clearly differentiated to the consumer.

Now Scratch Wireless, one of the early WiFi-first operators back in 2013, acknowledges it is no longer selling its services to new customers. Although it promises to be working on unspecified new services, for now it “continues to support current customers, however, our product is discontinued and unavailable for purchase”, as its website says.

In an interview with FierceWireless, CEO Alan Berrey said WiFi-first is a “compelling and disruptive force in the mobile industry” – but “difficult to implement. There are several constraints which all WiFi-first players are facing. Scratch Wireless is in the process of tearing down industry walls and opening new on-ramps to the ecosystem.”

Many MVNOs of the past focused purely on undercutting larger rivals on price, but these rarely remained successful for long, and were often snapped up by the MNOs themselves. The WiFi-first brigade have lower connectivity  costs because most usage falls outside the MVNO deal and its associated fees, but they still have the other high outlays which are required in a competitive and price-driven consumer market – customer acquisition, marketing, support and so on.

It is a tough job to invest in all that and win market share from established MNOs, cablecos and even Google with its Fi brand. All of these are also harnessing WiFi-first in various ways, but have far greater resources and brand awareness to bring into play, while the cable providers also have their own network of WiFi hotspots and homespots, giving them greater control over quality of service and customer monitoring.

Thus the most disruptive uses of WiFi-first have come from large operators so far. For instance, Iliad’s Free Mobile in France, which used it to minimize the actual cellular costs of becoming a mobile provider and also tapped into its home broadband lines to attract customers with multiplay bundles. In the US, Comcast is likely to do the same this year, while Cablevision has a WiFi-only service called Freewheel. In this situation, it is hard to see the way ahead for WiFi-first pure-plays.

Their best hopes lie in achieving large scale quickly, which means investors with deep pockets and a high degree of motivation to see the established order disrupted.  FreedomPop, which is backed by Intel, is one of the high profile ‘freemium’ MVNOs which is starting to export its US model around the world. It recently announced a new $50m round of funding, which will mainly support international expansion beyond its current markets in the US and UK. It has also announced a roaming service called Global SIM, which includes a personal hotspot and allows its customers to access 200Mbytes of data a month for free in 25 countries including the biggest European markets – that total will grow to 40 during 2016, extending beyond the US and Europe into parts of Asia and Latin America.

Scratch initially launched with a range of offers, including a 24-hour data and voice pass for $1.99, to a 30-day pass, with 250 voice minutes or 200Mb of data on the cellular network, for $14.99. Last year it dropped unlimited cellular passes and capped a $2 day pass at 50Mb. Last October, it stopped offering free WiFi Calling and free texting over Sprint’s cellular network, instead moving to a $9.99 monthly fee for unlimited WiFi and cellular calling.

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Caroline has been analyzing and reporting in the hi-tech industries since 1986 and has a huge wealth of experience of technology trends and how they impact on business models. She started her career as a journalist, specializing in enterprise and carrier networks and in silicon technologies. She spent much of her journalistic career at VNU Business Publishing, then Europe’s largest producer of technology publications and information services . She was publishing director for the launch of VNU’s pan-European online content services, and then European editorial director. She then made the move from publishing into technology market analysis and consulting, and in 2002 co-founded Rethink Technology Research with Peter White. Rethink specializes in trends and business models for wireless, converged and quad play operators round the world and the technologies that support them. Caroline’s role is to head up the wireless side of the business, leading the creation of research, newsletters and consulting services focused on mobile platforms and operator models. In this role, she has become a highly recognized authority on 4G systems such as LTE and WiMAX, and a prolific speaker at industry events. Consulting and research clients come from major mobile operators, the wireless supply chain and financial institutions.

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