FreedomPop confirms M&A talks with second telecom company

LAS VEGAS--Sprint (NYSE: S) MVNO FreedomPop has been in formal M&A discussions with a publicly traded telecommunications company that is not a Tier 1 U.S. carrier, according to FreedomPop CEO Stephen Stokols. That offer is in addition to ongoing discussions on a deal with a major U.S. carrier, he confirmed.

In an interview with FierceWireless here at CTIA's Super Mobility Week conference, Stokols declined to name the telecommunications company that has approached FreedomPop, other than to say it is not one of the four Tier 1 wireless carriers--Verizon Wireless (NYSE: VZ), AT&T Mobility (NYSE: T), Sprint and T-Mobile US (NYSE:TMUS).

FreedomPop has built its business model around giving smartphone customers 500 MB of LTE data, 200 voice minutes and 500 texts per month for free. Beyond that, customers can pay $10 per GB of data or $20 per month for unlimited voice, texting and data. The M&A discussions come as the Tier 1 carriers, especially Sprint and T-Mobile, engage in an increasingly aggressive battle over pricing. Broadly speaking, Stokols said, FreedomPop is seeing this interest because of the "intensified rivalry going on in the U.S. right now and the resulting focus on model innovation."

Stokols said the company's preference is to grow into a firm with a valuation north of $1 billion within the next 18-24 months and conduct an initial public offering, assuming the company could keep growing its business. However, he described the different motivations of FreedomPop's unnamed suitors.

The major carrier that is interested in the company, Stokols said, is intent on "the capabilities and strategic synergies we may be able to deliver to the retail business." In that instance, he said, FreedomPop would act as a sub-brand the carrier could leverage to acquire new customers. Stokols said FreedomPop has had discussions around an acquisition at a nine-figure valuation with this unnamed carrier.

If this carrier bought FreedomPop, Stokols said he suspects he and the firm's management would not have much control and "we would be focused on a lot of what we built on the free model applied to powering a carrier's retail proposition" and to "drive customer acquisition at a low cost on their retail side of the shop."

On the other hand, the other unnamed telecommunications company would want FreedomPop to be much more central to its business, Stokols said. "We would drive growth and stock price for this company," he said. In the scenario, FreedomPop would have a greater deal of autonomy and authority to shake up the wireless industry, Stokols said.

Stokols added that this second offer is "actually the most interesting" of the two, but that FreedomPop's board may not necessarily feel the same way.

Stokols said that FreedomPop likely will decide to conduct a transaction or not before the holidays. If the company doesn't enter into a transaction, he said FreedomPop would then likely look to raise money for its planned international expansion.

FreedomPop has a partnership with KPN's Belgian subsidiary BASE, which hopes to launch service in Belgium by the end of 2014. FreedomPop has plans to expand beyond Belgium to the UK, Germany, France, Spain and the Pacific Rim via additional, unnamed carriers.

FreedomPop has also been busy ramping up its own retail strategy. The company has inked a deal with retailer Staples to sell its wireless products in 1,700 Staples stores nationwide by the holidays. Stokols has said the company also has a distribution with Fry's Electronics and other electronics retailers, with an eye toward a commercial launch by the end of this year.

Stokols said FreedomPop has hundreds of thousands of subscribers, and has said the company is on pace to hit 1 million subscribers by the end of 2015. In 2013, he said, the company generated just $9 million in revenue. So far this year, he said, revenue is running in the "many tens of millions" of dollars.

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