Q&A: Alan Berrey, CEO and co-founder, Scratch Wireless
By Sean Jackson for Telco-OTT Today | June 27, 2014
Data show that users can, and are, living free with their Scratch phones—65 percent of users haven’t paid a cent for service.
- Why do you think we’re seeing the emergence of Wi-Fi First carriers now?
Wi-Fi is becoming more and more prevalent, with no sign of slowing down as Cisco predicts that by 2017, Wi-Fi devices will power almost all Internet traffic. People are around Wi-Fi more than ever — a recent survey we conducted showed that 90 percent of people are within Wi-Fi range an average of 19 hours a day, and almost all (95 percent) have Wi-Fi access at home. The traditional carriers know this as well and offload upwards of 50 percent of mobile traffic over Wi-Fi when they can. Even though the traffic is being routed over Wi-Fi, you’re still paying an arm and a leg for service. At Scratch, we don’t think that it’s right for consumers to get gouged with high prices when wireless service can, and should, be free.
We believe that there is a better way to provide mobile phone service, one that works in the same way as any other consumer electronics product, such as a tablet, gaming console or laptop, that can connect to the Internet and be used without limits incrementally free. That’s ultimately the problem that Scratch has set out to solve, and at the end of the day, the timing is right because people are becoming more concerned about the complete control wireless carriers have over us.
- Why are we seeing it happen in the US, but not elsewhere?
We are seeing Wi-Fi First more frequently in the U.S. than other countries for a number of reasons, including:
- Wi-Fi is extremely prevalent in the U.S. – from our homes, offices, schools and countless public hotspots found at coffee houses, parks, etc.
- Wi-Fi is incrementally free (you pay for it in your home but you don’t pay for it on a per MB basis) which causes many individuals to have high usage rates for Wi-Fi when they are home.
- The heavy dominance of smartphones in our society creates a greater reliance on Wi-Fi than found in other parts of the world.
- Describe your average subscriber.
We don’t have an average subscriber, per se, as anyone who is on Wi-Fi for a majority of the time is really a fit. That being said, the 12-24 age demographic has been particularly successful for us.
- Can you share information on your subscribers’ usage patterns – what’s the ratio of calls over Wi-Fi to calls over cellular, the same split for SMS and data?
Data from initial Scratch users showed that users can, and are, living free with their Scratch phones—65 percent of users haven’t paid a cent for service and on average are sending and receiving over 1000 text messages per month while also using hundreds of minutes of voice. The Scratch hypothesis that consumers are on Wi-Fi for most of their day is proving true with 91 percent of all Scratch voice calls being placed via Wi-Fi and 74 percent of texting is performed on Wi-Fi.
- Do you think the carriers are looking to see whether Scratch is successful, before launching copycat services?
We’re not actually worried about carriers jumping into the Wi-Fi First territory. In fact, one of the things we’re doing is encouraging and helping others, such as MSOs and regional operators, launch their own Wi-Fi First programs.
- If one of the licensed MNOs launched a comparable service, would that be bad news for Scratch?
No. We see interest from the MNOs in launching a Wi-Fi First service as a testament to the work we’ve been doing for the past four years and as a validation of our business model but the MNOs are addicted to growing ARPU. They might use Wi-Fi to reduce costs but its unlikely they would cannibalize their current revenue stream.
- Many tariffs now come with unlimited voice and SMS, doesn’t that kill your business model on voice?
At this time, we are unaware of any other service that offers free unlimited talk, text and data. While the packages maybe unlimited, they still cost, on average, $83/ month. In contrast, two-thirds of Scratch customers are living completely free and enjoying unlimited texting at all times in addition to unlimited voice and data on Wi-Fi.
- Why so few handsets?
We chose to launch with one handset, the Motorola Photon Q, in order to focus on raising awareness for Scratch’s Wi-Fi First approach to mobile service. Our vision is to have a wide variety of handsets at varying price points, but we also don’t see the need to have 50 smartphones in our lineup. In the end, there isn’t that much variety in the features offered by the devices, and often the 50 smartphones on the shelf at Best Buy just confuse consumers. We wanted to focus on providing consumers with the best mobile service and devices that work for their lifestyles and budgets. With that in mind, consumers should expect to see a broader variety of handsets at various price-points later this year.
- How do you differentiate yourself from the likes of Republic Wireless and FreedomPop?
Our business model is unique, free unlimited talk, text and data on Wi-Fi and free unlimited texting when away from Wi-Fi. No one else is offering this and it’s been very well received in the marketplace so far. In addition, we’ve architected our solution as a platform to help enable others, such as MSOs and regional or international operators, launch Wi-Fi First solutions. We’re bullish on the Wi-Fi First premise and believe our platform business could be even bigger than our direct-to-consumer business.
- Finally, what are your plans for the future?
We have a lot of exciting things planned for the next few months, including some great new devices at varying price points. In addition, we’ll also unveil some significant technical updates to create a much more powerful voice and messaging experience. I’d also expect to see some announcements from us in the near future on enabling others for Wi-Fi First both domestically and internationally.