Google's Project Fi MVNO isn't a threat to Wi-Fi-first players Republic, Scratch and FreedomPop

Google's (NASDAQ: GOOG) Project Fi MVNO, which uses Wi-Fi hotspots for calling and data in addition to cellular connections from Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS), is not a competitive threat to MVNOs Republic Wireless, Scratch Wireless and FreedomPop that rely on similar models. Instead, these companies say that the the search giant's entrance into the wireless market is a validation of the Wi-Fi-first concept.

Google said it has developed new technology that intelligently connects customers to the fastest available network at their location, whether it's Wi-Fi or an LTE network. Project Fi automatically connects users to more than 1 million free, open Wi-Fi hotspots that Google says it has verified as fast and reliable and that Google will encrypt once a user is connected. If a customer leaves an area of Wi-Fi coverage, Google says calls will seamlessly transition from Wi-Fi to cellular networks.

For $20 per month plus taxes and fees, the service offers access to around 1 million U.S. Wi-Fi hotspots and unlimited domestic voice and texting, as well as unlimited international texting and low-cost international calling in more than 120 countries. Then, customers pay $10 per GB of data on top of that. Importantly, at the end of the month, Google will credit users for their unused data, so that users only pay for what they use.

Republic, Scratch and FreedomPop are all Sprint MVNOs, and under their model customers only roam onto Sprint's cellular network when Wi-Fi is unavailable. Republic will soon introduce plans that credit customers for unused data and FreedomPop has offered rollover data as an add-on for $3.50 per month since 2013.

"It's like having a famous person move next door," Republic CEO David Morken told the Wall Street Journal. "You want to give them a warm welcome and hope they know how to be a good neighbor."

Republic currently offers a $5 Wi-Fi-only plan, a $25 plan with unlimited 3G data from Sprint and a $40 per month plan that has unlimited Sprint LTE data. The company's service only works with four Motorola Mobility smartphones though, the newest being the second-generation Moto X, which sells for $400 without a contract.

Google declined to comment, according to the Journal. Nick Fox, Google's vice president of communications products, wrote in a company blog post last month that Project Fi is designed to make sure that "wireless connectivity and communication keep pace and be fast everywhere, easy to use, and accessible to everyone."

"Similar to our Nexus hardware program, Project Fi enables us to work in close partnership with leading carriers, hardware makers, and all of you to push the boundaries of what's possible," he wrote. "By designing across hardware, software and connectivity, we can more fully explore new ways for people to connect and communicate."

Jon Finegold, vice president of marketing for Scratch, said that Project Fi is generating a great deal of interest in Scratch. He also said Google's pricing, and the fact that the Project Fi service only works right now with the high-end Nexus 6 smartphone (which sells for $650 unlocked), indicates that Google is not targeting Scratch's customer base.

"I don't see any indication from Google that they are going after our target consumer," he said in an interview with FierceWireless. "We really focus on the value consumer. We're more disrupting the prepaid guys than we are the Verizon and AT&T's of the world. I think what Google is going to do is probably put some downward pressure on Verizon and AT&T. I don't see Google going after the TracFone subscriber. That's not in their DNA to do that."

Scratch makes text, voice and data services free when a user is on Wi-Fi.  Scratch also offers optional unlimited cellular voice for $1.99 and unlimited cellular data for $1.99 on a 24-hour pass.

Scratch doesn't use a curated Wi-Fi database but its technology sniffs out hotspots to determine whether they are strong enough to make a VoIP call. Like Republic, the company can facilitate Wi-Fi to cellular handoffs for calls but finds that most people don't use the technology. The company's service only works with the aging Motorola Photon Q, though it is going to launch a new device in the coming weeks. Later this year Scratch will introduce a cloud-based solution that will let its service work on any Android device without altering the operating system.

FreedomPop CEO Stephen Stokols told FierceWireless recently that Project Fi is "not massively disruptive from a pricing perspective" and is also a "validation" of the model pioneered by Wi-Fi-first companies. Cablevision (NYSE: CVC) earlier this year launched its Freewheel Wi-Fi voice calling service, though that service does not have a cellular fallback option.  

"In its current incarnation it's niche," Stokols said of Project Fi, noting that it works on one device and Google needs to modify the hardware and software for the service to work.

For more:
- see this WSJ article (sub. req.)

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