Free Phone Service

Assurance Wireless today announced that low-income families in the state of Arizona now have access to free cell phone and 250 monthly voice minutes. Arizona marks the 38th state in which Assurance now operates. Assurance is run by Virgin Mobile USA and Sprint.

Assurance also offers low-cost plans. For $5 per month, Assurance customers can double their monthly minutes to 500, and for $20, increase voice minutes to 1000 and add in 1000 text messages. Customers will still have access to their 250 free minutes even if they can’t pay for the extra minutes. Assurance also offers pay-by-use voice minutes, text/email messages and international calling.

Assurance Wireless is a federal Lifeline Assistance program (FAQ). Lifeline is a government program supported by the Universal Service Fund. Individuals who qualify generally need to be on the Food Stamp program or qualify for free school lunches.

For states that rely solely on the federal Lifeline and Link-Up program eligibility criteria, subscribers must either have an income that is at or below 135% of the federal Poverty Guidelines, or participate in other assistance programs. People who qualify can receive a free phone, 250 free minutes and 250 free text messages each month.

TracFone the US MVNO, offered additional details on its pilot program to deliver mobile broadband to low-income Americans as part of the FCC’s Lifeline initiative. The $13.8 million program was established last year by the FCC to solicit ideas on how its Lifeline program could be structured to deliver broadband services to low-income households.

The FCC selected 14 projects from a range of companies that will use the money to deliver broadband to select areas. Most of the $800 million in subsidies last year went for landline service even as more Americans cut the cord in favor of exclusively using a mobile phone.

The Pilot Program is an 18-month trial period, which begin February 1, 2013.

The subsidy amount in the 14 test projects uses money from the Universal Service Fund (USF) and ranges from $5 per month to as much as $39.95 per month, although this upper limit is reached by just one project serving Tribal lands. Projects will test a range of monthly end-user charges, such as $40, $35, or $20, with some projects testing lower charges and others testing higher charges. All projects include some end-user charge.

TracFone is working with a firm called Technology Goes Home, and will test different combinations of free or discounted hardware, including smartphones, and plans priced at $10 or $20 per month, using four test groups and a control group.

The industry has rapidly become dominated by TracFone, whose business model has focused largely on taking advantage of the subsidies, spending $41 million advertising its “free” phones to the poor in 2010. The Miami-based company resells major providers’ services, and it successfully petitioned for an exception to a rule that made only companies actually controlling cellular service eligible.

The truth is, the cost per bit using LTE is about half of HSPA. LTE is not being implemented because it offers consumers faster speeds — carriers are rushing to LTE networks because they deliver more profits. Of course, consumers are using more data – but at rates that still reflect the higher bit costs of 3G data.

Three years ago, a 3G data service using 4GB cost about $70/mo. It’s the same price today using LTE. Presumably, the same profits could be retained at $35/mo since carrier costs are half. Verizon says 50 percent of its data now travels over its LTE network.

Verizon delivers more than a 50% profit margin on their data services, with a 42% margin overall. As long as carriers can keep their wholesale MVNO spectrum costs high, they can keep out competition. Carriers like Sprint and T-Mobile, which rely on wholesale spectrum leasors, require a measure of sophisticated politics — an open approach to competitors — but at a price that doesn’t hurt their bread and butter operations.

It’s one of the reasons that Dish is so interesting. Their 40 MHz of 2.1 GHz spectrum could be a greenfield operation. With a partner like Google or Amazon, lower monthly fees could be offset by increased ad revenue. But building a largely duplicate network for $7B is a big risk. Sharing antennas, towers and billing operations with T-Mobile, AT&T or Sprint makes more sense — if the price is right.

Too bad politics will prevent Dish from teaming up with First Net. Dish’s satellite phone tie-in would be a perfect fit for the government cell phone operation, and it could support thrown-up small cell coverage for incidents. A 600 MHz commercial service might also be co-located on FirstNet’s towers.

Tracfone’s América Móvil might team with Dish and offset taxpayer costs for FirstNet by delivering rural connectivity at 600 MHz and urban service at 2.1 GHz. FirstNet is sure to cost taxpayers lots more than the $7B estimated by its (mostly) Republican supporters.

Posted by Sam Churchill on .

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