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Upstart mobile operators push mobile data pricing limits

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If you subscribe to one of the major mobile operator’s smartphone plans, chances are you’re accustomed to paying for data on a use-it-or-lose-it basis. Consumers often buy a bucket of megabytes or gigabytes each month, and what they don’t consume by the end of the billing cycle disappears into the ether, replaced by a brand new chunk of data every month.

However, thanks to a bunch of new upstart operators the oft-criticized approach might soon come to an end. A group of mobile firms are challenging the fundamental notion of mobile data pricing, and in most cases offering a far cheaper monthly bill to boot.

Google’s recently launched Project Fi sells data strictly on the meter: Every 100 MBs you consume costs a buck. Meanwhile, Los-Angeles-startup FreedomPop offers a bare-bones voice and data plan to all of its customers at no charge, upselling customers on other services, and New York-based mobile ISP Karma sells a gigabyte of data that never expires.

This week another upstart operator called Republic Wireless introduced its own spin on the data plan. Like the big carriers, Republic will sell you a monthly bucket of data, but if you don’t use it up the company will refund the unused portion. For instance, users who sign up for a $30 a month 2GB plan, but only use 1.5 GBs get a $7.50 refund. Conversely, if users go over their plan by the same 500 MB they are charged an additional $7.50.

The concept is essentially the same as the pay-for-what-you-consume plans offered by Project Fi, but the difference is that Republic’s rates work out to be a flat $15 a gigabyte, while Google only charges $10.

The most interesting thing about Republic’s new pricing models, however, is that they seem aimed at getting customers to consume less mobile data, not more. Republic isn’t your typical mobile operator since it encourages its customers to abandon the cellular network whenever possible and use readily available Wi-Fi networks around them. The company has developed special software for its Android phones that automatically connect customers to public and private hotspots whenever they’re available. It even offers a Wi-Fi-only plan for $10 a month, which bypasses the cellular network entirely for all phone calls, text messages and data connections.

Republic, which is owned by Internet and telecom service company Bandwidth, originally used its Wi-Fi-first network to drive down cellular data costs, so it could offer cheap unlimited plans to customers. These days it’s now phasing out its $25 unlimited 3G plan, and $40 a month unlimited 4G plan (though current customers can still subscribe to them).

According to Bandwith CEO and founder David Morken, so much of Republic’s traffic is now being shunted onto Wi-Fi networks that most of its customers are consuming less than 1 GB a month in cellular data. By moving to a metered data model, Republic’s customers would pay far less than if they subscribed to an unlimited plan, he said. Republic conducted trials of the new plans with several thousand customers and found that the average monthly bill came out to $14.88 a month.

We’re starting to see more and more of these type of upstart companies emerge that challenge traditional mobile pricing rules, though, so far, none of them have made a huge impact on consumers. One of the most successful operators, FreedomPop, still has less than one million customers. Although, if they became too successful, the mobile powers-that-be could easily shut them down.

Operators like Project Fi and Republic don’t actually own their own 3G and 4G cellular networks. Instead these companies are Mobile Virtual Network Operators (MVNOs) that buy network time from one of the major operators like Sprint (S) or T-Mobile (TMUS). Since they’re paying wholesale rates for voice, SMS and data, these MVNOs have a lot of flexibility to experiment with new pricing models, which is great source of innovation in the mobile industry. It’s important to note, though, that if these virtual operators began siphoning off millions of customers, the big four mobile operators would no longer tolerate them, and block them for their networks.

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