More than free data: FreedomPop launches carrier-killing mobile service with free calls and texts

For wireless Internet provider FreedomPop, the endgame was always to offer a completely free mobile service.

One year after successfully launching with the radical idea of offering free mobile data and cheap devices, FreedomPop today is launching a full-featured free mobile service, which comes with 500 text messages and 200 anytime minutes. It also comes with the company’s usual 500 megabytes of free data.

Like FreedomPop’s existing services, the new service runs on Sprint’s network. But while FreedomPop has recently moved to Sprint’s LTE network for its latest hotspot, the company is relying on the slower WiMax 4G network for its first phone, the HTC Evo Design, which it will offer for $99. FreedomPop is only buying up refurbished Evo Design units, which helps it cut costs, founder and chief executive Stephen Stokols told me.

Of course, FreedomPop’s service isn’t free forever: You can pay $10.99 to get unlimited voice and text (with no contract), and similarly you can pay for extra data. With its initial service, FreedomPop was the perfect way to get your grandmother online, or just about anyone who doesn’t need a dedicated broadband or cellular service. Now, FreedomPop has become the best way to get your older relatives fully connected.

After scoring $5 million in funding back in July, Stokols says FreedomPop has more than tripled its customer service staff. Now the company is able to respond to issues within a day, where it used to take more than three days. In a previous chat, Stokols mentioned that the company’s biggest mistake over the past year was underestimating its customer service needs. With this launch, he isn’t making the same mistake.

Stokols foresees the market for mobile hotspots radically diminishing over the next few years, as people use their phones to tether devices that don’t include built-in cellular access. The new phone service, then, is a bet on the future. In an effort to undercut traditional carriers, he said, FreedomPop will always offer a $99 unsubsidized smartphone “no more than two generations old.” Eventually, you’ll be able to use any Sprint device with the service.

I was surprised to learn that FreedomPop will only sell refurbished smartphones — that’s not something the company clearly reveals on its website. It’s a sensible move as FreedomPop aims to offer the most inexpensive devices possible.

Stokols revealed that the company is snapping up refurbished phones in bulk through something it calls internally “Operation American Gangster,” a reference to the film about real-life gangster Frank Lucas, who arranged deals with drug suppliers in Asia to score high-quality and inexpensive product.

“We had to go way upstream to get the inventory and pricing we needed,” Stokols recalled. It’s something FreedomPop also explored in its quest to find hotspot inventory over the past year. At one point, Stokols said, he had to rush out in the middle of negotiations to grab $400,000 in cash to pay off a supplier with a crate of 20,000 hotspots. (The company has since set up better ways to deal with suppliers like that.)

“It’s a whole ‘nother world, operating in that world is part of our advantage,” Stokols said.

Los Angeles-based FreedomPop has raised $16 million so far from DCM Capital and Mangrove Capital.