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TextNow began selling refurbished versions of the Samsung (005930:KS) Galaxy S II ($120) and Nexus S ($90), both with their standard phone features disabled. In their place is TextNow’s voice and text app, which lets you make VoIP-based calls and send IP SMS, just as you would on a normal mobile phone. TextNow is a mobile virtual network operator (MVNO) on Sprint (S), but instead of buying bulk minutes and messages from its carrier partner, it’s sending all traffic over Sprint’s 3G data network.
The advantage of this approach is much lower costs. For its baseline service, TextNow is charging $19 a month, which includes 500 MB, unlimited texting, unlimited inbound calls, and 750 minutes of outbound calls. TextNow assigns you a standard telephone number, making the service look like any ordinary phone to outsiders—think Vonage (VG) on a smartphone. Sticking to its OTT roots, however, all calls to other TextNow users are free.
Essentially, the service is TextNow’s standard OTT app featured on a dedicated smartphone, with an access plan included. When Derek Ting, co-founder and chief executive officer of TextNow’s parent company Enflick, gave GigaOM a preview of the smartphone strategy in June, he explained that TextNow has always targeted younger consumers who couldn’t afford—or simply didn’t want—to pay for a monthly mobile service plan. Consequently, the typical TextNow customer uses its app to connect such devices as the iPod Touch or tablets with no mobile connection.
TextNow felt that those customers didn’t just need an app they could use on Wi-Fi but a full-bore mobile service that took advantage of IP communications to offer cheap voice plans. It started out selling a 3G Wi-Fi hotspot that could connect customers to the wider mobile network, but its ultimate goal was to offer phones following the same principle. That’s why TextNow is targeting older Android smartphones and refurbished handsets, Ting said: Not only can it offer a cheap service, but cheap devices as well.
Ting sent me one of TextNow’s Galaxy S II’s so I could test the service out, and I have to say it worked it a lot better than I had expected. I live in Chicago, where I was able to access Sprint’s WiMAX network (both phones support it), and found the voice quality to be just as good as via a regular mobile call. SMS went through without a hitch, and there was no delay receiving messages. Even when I found myself in 3G coverage, I had no trouble making or receiving calls, though I did find that the setup time for connecting calls increased substantially.
TextNow isn’t the only company with an all-IP mobile strategy. Mobile broadband MVNO FreedomPop has promised to deliver its own VoIP service this summer, using Android phones and its unique freemium business model. MetroPCS has been supporting VoIP on its LTE systems since August, augmenting its traditional 2G network (though that service will quickly disappear as customers migrate over to T-Mobile’s (TMUS) GSM network). And all the major carriers plan to offer voice over-LTE (VoLTE) in the next few years.
The difference is that the major carriers aren’t necessarily using VoIP to make their services cheaper. They’re tapping VoIP to make more efficient use of their networks and to build new IP communications features around their core voice services.
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