RALEIGH — When Bandwidth launched an inexpensive smartphone plan that used Wi-Fi as its primary network, the Triangle company aimed to capitalize on consumers growing frustration with the fees charged by major carriers.
Customer response to the plan, which costs $19 a month for unlimited talk, text and data, was instantaneous. About 100,000 people signed up within 24 hours of the launch in November of a beta test by Bandwidths Republic Wireless division.
That initial volume was far greater than the few thousand that Republic was ready to accommodate, and the company ended up with the names of 200,000 people who expressed interest in the service.
Its an indication that people are just fed up with having to pay so much for their mobile phone service, said Noreen Allen, chief marketing officer at privately held Bandwidth, which is in the midst of shifting its headquarters from Cary to N.C. States Centennial Campus in Raleigh.
Republic hasnt made its service available to the public at large, but the company expects to roll it out in time for the holiday shopping season.
Proponents of the service say it has the potential to upend a wireless industry that has become increasingly dominated by behemoths such as AT&T and Verizon.
I think Republic has an opportunity to play a significant role in changing the wireless industry and making wireless connectivity available and affordable to a much greater portion of the population, said Brian Bailey of Charlotte investment firm Carmichael Partners. Last year Carmichael invested $22 million in Bandwidth, the first outside funding for the 13-year-old company.
The soaring popularity of smartphones, which many people use as a scaled-down computer that keeps them connected to the office, has made cellphone service a necessity for many. And that service isnt cheap, particularly for customers who consume a lot of data.
T-Mobile, for example, is promoting an $89.99-a-month plan for unlimited talk, text and data on its 4G network. T-Mobiles plan also requires a two-year contract; Republic doesnt require a contract.
People are spending more on wireless than (ever) before at a time when the income of Americans has come down, said telecom analyst Roger Entner, founder of Recon Analytics.
Republics service takes advantage of the growing prevalence of Wi-Fi networks and Bandwidths past investments in its rapidly expanding business.
In addition to its wireless division, Bandwidth provides voice-over-Internet phone service to thousands of small businesses across the country and operates the nations sixth-largest telephone network measured by phone numbers used by customers such as Google Voice, Vonage, Skype and Pinger.
That phone network, which Bandwidth calls iNetwork, is the backbone of Republics service.
When your call (is made via Wi-Fi), where does it go? It goes to iNetwork, and iNetwork completes that call, said Bandwidth co-founder and CEO David Morken. If we didnt have iNetwork, Republic would not exist.
Morken said Bandwidth has invested more than $50 million in iNetwork over the years. The companys engineers also worked for six months to develop the technology used by Republic, called Hybrid Calling, which enables a phone to use Wi-Fi as its primary network.
Wi-Fi is what allows Republic to offer its smartphone service at such a low cost. The company pays nothing to leverage the existing network of Wi-Fi service in the home, office and public hot spots.
The backup, when a Wi-Fi network isnt available, is Sprints cellular network.
Republic says research has shown that most people are in the vicinity of a Wi-Fi network 60 percent of the time. Morken says of the extensive and growing presence of Wi-Fi: Wi-Fi is eating the world.
Still, Wi-Fi isnt everywhere, and moving out of range of a network is not always a seamless transition for Republic subscribers. If a user is on a call via the Wi-Fi network and then moves out of the networks range, the phone doesnt automatically shift to cellular service. That leads to dropped calls unless you push a button to shift calling modes.
It is so not intuitive, it is so clunky, that its not really useful, said Morken. The company is working on eliminating this problem.
Another downside of Republics service is that currently only one smartphone Motorolas Defy XT works with its technology. The phone costs $249. When Republic launched its initial beta service last year, it reserved the right to halt service to customers who used an inordinate amount of Sprint cellular service, but it quickly concluded that policy was wrong-headed and jettisoned it.
Instead, Republic is willing to lose money on customers who use an inordinate amount of Sprint cellular service in order to offer one-size-fits-all pricing without any caveats.
We have some customers who are not profitable, Morken said. We have other customers who are radically profitable.
The model works, he said, because most of Republics customers are around Wi-Fi most of the time.
On July 31 Republic went into Phase 2 of its beta, making its service available to those who signed up last year. The company is working its way through the list alphabetically and so far says it has signed up tens of thousands of new customers.
Morken said the company is temporarily limiting the number of customers it serves to ensure that it can maintain the quality of its service as it ramps up. We want a good user experience, he said.
The recent reviews in tech-oriented publications about Republic Wireless beta service have been more upbeat than they were last year, when the phone that the company offered and has since dropped was criticized for being outdated.
A Geek.com review found the sound quality fantastic ... better call quality than I have ever had on a mobile carrier, although the reviewer noted that the quality degraded on some public Wi-Fi networks. A CNET reviewer found that although some of the calls I made (via my home network) sounded fine at both ends, others exhibited a bit of static or echo.
As for the phone itself, Geek.com concluded that although it doesnt compare to the latest and greatest smartphones, if youre not interested in a top shelf device, if youre just looking for something that will allow you to take advantage of a $19/month unlimited everything plan, the Defy XT does the job quite nicely.
Bandwidth is banking on its Republic Wireless division, which accounts for about 100 of its staff, becoming a major driver of revenue growth going forward. The company reported revenue of $84 million in 2010 and $106 million in 2011, and its on track to hit $130 million this year. About 75 percent of the companys revenues come from its iNetwork.
Bandwidth already employs 260 people locally and expects to add 100 more over the next 12 months.
Morken said the conventional wisdom in the industry after Republic made a splash with its beta launch last November was that a direct competitor would emerge very quickly. But it hasnt happened yet.
Morken said the need for a nationwide network means the barrier to entry for startups is high. At the same time, he noted, established companies that do have a nationwide network, such as AT&T and Verizon, would be cannibalizing their existing subscribers by offering a similar service.