1 million people pay nothing for cellphone service, so how does FreedomPop make money?

There are times when FreedomPop founder Stephen Stokols would get better coverage or service using a competing cellular carrier. Like when he got booted from his own provider after getting tripped up by confusing settings. But Stokols — along with his 2 million customers — has been willing to suffer occasional headaches in exchange for an unbeatable deal. Half the people using FreedomPop pay nothing for cellphone service, including mobile Internet access. There are limits on monthly usage (500 megabytes in the U.S.) and caps on calling and texting (three hours and 500 messages). Finding a shop, reaching a customer service agent or buying a phone from FreedomPop can be complicated. And users need a credit card.

Stokols contends, though, that many should find the trade-offs attractive because he pegs median mobile data usage in the U.S. at about 700 megabytes per month. FreedomPop can afford to slash prices thanks to its departures from industry conventions, including accepting lower profit margins. FreedomPop’s investors say that the company is special because its marketing costs, about $10 per customer, are lower than anyone else’s. Free offers tend to get noticed with little spending on advertising. That lets FreedomPop charge customers less.