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Sprint MVNO Scratch Wireless launches 'free' Wi-Fi-based service

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Sprint (NYSE:S) MVNO Scratch Wireless is launching a novel Wi-Fi-based service that it claims will let customers get wireless service for free, with no catch.

Scratch CEO and co-founder Alan Berrey said the company's model is simple, and is focused on making text, voice and data services free when a user is on Wi-Fi, and making texting free all of the time. Like with fellow Sprint MVNOs Republic Wireless and TextNow, when a customer is out of Wi-Fi range, they roam onto Sprint's network.

However, unlike those services, customers can choose whether or not they want to buy passes to get access to voice and data services--or not. The passes provide minimal amounts of each, but can be purchased on a daily or month-long basis.

The company said 24-hour data and voice passes cost $1.99 each, and the passes provide 30 minutes of cellular calling or 25 MB of cellular data. Scratch said 30-day data and voice passes cost $14.99 each and provide either 250 cellular voice minutes or 200 MB of cellular data. Customers can buy the passes through an app on their phones, and can automatically have the service start by entering a PIN linked to their billing information.

At launch, the service will support only one phone, the Motorola Mobility Photon Q, for $269 (the device is a bit long in the tooth and hit Sprint's network in the summer of 2012). Berrey said Scratch is working with Motorola on other potential devices, but cannot announce anything yet; he said there is no timeline on when additional devices could be introduced. He said Scratch has modified Android at the operating system level and "redirected phones so that they point to Wi-Fi" as the primary network and then roam onto a cellular network only when they are away from Wi-Fi.

Currently, Scratch does not have a deal in place with a Wi-Fi hotspot aggregator such as Boingo Wireless or Devicescape, but Berrey said Scratch is "absolutely" interested in a deal with such companies. "We'd love to talk to you about all of the things we're considering and certainly that's one of them," he said.

Berrey acknowledged that other MVNOs have similar technical models, but said what sets Scratch apart is its offer of free service. "When you buy a device from us, your monthly subscription is zero," he said. "You can run on the free model and there is no monthly cost."

"There's really no reason why when you buy a cell phone you have to ante up for paying more for the service," Berrey added, noting that when consumers buy additional TVs or gaming systems their monthly home Internet bills do not automatically go up. "We think that's a fairly compelling offer," he said.

Berrey said the company estimates that right now between 50 and 60 percent of potential customers will want to pay for some kind of pass during the month and less than half will stick to free model. "We're not doing a lot to encourage that necessarily," Berrey said of the pass option.

As for how much growth Berrey expects? "We'll be thrilled when we have 150 subscribers," he added. "Our business model is built on a little bit more than that." He said Scratch will be doing limited marketing at first. "We're not really trying to blow the door off," he said.

Jon Finegold, vice president of marketing at Scratch, said the company's target customer has three characteristics. One is that they are on Wi-Fi a large percentage of the time, and another is that they are customers "who love their smartphones but just don't want to pay $100 a month" to a large carrier. The  third is that they are users who do not use voice as their primary mode of communication. He said the company will primary be targeting 14- to 24-year-olds.

Speaking to why Sprint has backed so many MVNOs of late, Berrey said Sprint "has had a great appetite for us" and that Scratch has been "really, really happy with the relationship with Sprint." He said Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) see this as competitive but that Sprint and T-Mobile US (NYSE:TMUS) "seem to have a little bit more appetite for disruption."  

Scratch has received $5 million in funding so far, including from Boston-based venture capital group CommonAngels. Berry said he and co-founder Eric Giler are the original funders and that in addition to CommonAngels the company has received funding from  "a couple of other entities and some private individuals."

For more:
- see this release

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