MVNO FreedomPop rejects M&A offers, gets $30M in funding and plans for a second U.S. carrier partner

After months of speculation, Sprint (NYSE: S) MVNO FreedomPop is not going to be bought by anyone after all. Instead, the company declined multiple takeover offers, raised $30 million in new funding and will continue expanding domestically and internationally. FreedomPop CEO Stephen Stokols also said that in 2016 the company will add another U.S. carrier partner.

FreedomPop's Series B funding round is led by Partech Ventures, with existing investors DCM Capital and Mangrove Capital also participating. Additionally, the company is adding a new, unnamed strategic investor to the round, but is not part of the initial funding and will be announced separately, perhaps in the next few weeks. "It is a major technology company and we will have [a] commercial deal on the heels of it," Stokols said of the strategic investor.

Before this funding round FreedomPop had raised $17 million in equity and $5 million in debt.

M&A speculation has swirled around FreedomPop ever since August 2014, when FierceWireless reported that a "major carrier" was in talks to acquire the company. In an interview with FierceWireless, Stokols said there were two main reasons FreedomPop decided to get more funding instead of get acquired.

First, the company is starting to gain serious traction terms of subscribers and revenues, and is about to kick off its international expansion in the UK, he said. Stokols said the company expects to cross 1 million subscribers sometime in the third quarter. Secondly, FreedomPop would lose control over its strategy and direction if it were acquired, Stokols said.

In the U.S., FreedomPop has built its business model around a service that gives 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. However, customers' data speeds are reduced to 3G speeds after the first 1 GB of usage. The service runs on Wi-Fi but uses Sprint's network when Wi-Fi coverage is not available.

"We're at the point now where we finally have the product quality there," Stokols said, noting that it has been around 20 months since FreedomPop launched its smartphone services. He said the company has improved its voice quality and user experience and is starting to see subscriber additions ramp up.  

Coupled with an international expansion, "those two factors alone, even if we're only marginally successful, put us in a position where we're 2x or 3x in valuation even 12 months from today, Stokols said.  

There were many more companies interested in FreedomPop than the company had expected, Stokols said, adding that the firm received more than half a dozen first-round bids. That interest helped drag out the process of deciding whether to make a deal or get funding, he added.

Some were wireless carriers (including an international one) that either wanted to buy FreedomPop as a defensive measure against over-the-top services or that wanted to get ahead of the curve, Stokols said. There were cable companies in the mix as well, though Stokols said most MSOs are still trying to figure out the right wireless strategy. There were also Internet companies involved and three "small-cap" companies with less than $1 billion in revenue. Stokols declined to name any of the parties.

Turning down offers now "doesn't mean that some guys who were in the process go away," Stokols said, adding that at this point FreedomPop just thought funding was its best option.

FreedomPop aims to launch in physical retail stores in the U.S, with at least one big-box retailer in the fourth quarter and may add another retail partner if it can finalize a deal in the next few weeks. 

Stokols said that next year the company plans to add a second U.S. carrier partner, though he declined to discuss the status of the negotiations. "Ultimately, what it comes down to is pricing," he said, adding that FreedomPop will be looking to terms that are favorable and in line with its agreement from Sprint. 

FreedomPop plans to launch commercially in the UK later this summer and aims to launch its second international market by the end of the year. FreedomPop has network deals in place in France and Spain, but Stokols said the company is going to make sure its business model in the UK is sound before expanding to other countries. Eventually, he said, the company's SIM card will let users roam into 15 different countries, even if FreedomPop does not have commercial deals with operators in all of those countries.

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