"We are switching [the source of] revenue from the consumer to the advertiser," said Peter Lilley, CEO of the virtual mobile network operator.
The new mobile carrier, targeted to the 17.3 million U.S. college students aged 18 to 22, is set to launch in the fall. It will "pre-register" students with valid school identification for a free mobile phone through a Web site. In exchange, students will be required to provide information about themselves that marketers can use to target ads.
Beat the clock
Students will agree to accept up to 12 ads a day that will be sent as text messages, although the company's business plan is based on sending three to four ads, according to an executive summary Xero Mobile is sending to prospective investors. At the end of each ad, a 10-second countdown clock will run. If the student clicks before the clock runs out, indicating the ad was seen, he or she will be rewarded with free air time or text messages.
Mr. Lilley said Xero Mobile initially will give away 1 million high-end mobile phones. Students receiving the free phones will be rewarded with free talk minutes or text messages if they can get friends to sign up for Xero Mobile service and a discounted Xero Mobile phone.
Xero Mobile is aiming for 5 million subscribers in short order and a profit of $1.5 billion in three years.
That's ambitious, to say the least, of a relative unknown in the mobile-phone space. Only last week Xero completed what it called a reverse merger, making it a publicly traded firm without an initial public offering.
$40 million to $50 million in marketing
Mr. Lilley, who was previously an executive of the now-bankrupt Gizmondo, a video-game company that was to have been ad-supported, said the plan is to have representatives at 300 colleges. Additionally, he expects to spend in the range of $40 million to $50 million in marketing, which includes distribution. The goal is to line up MTV-style sponsors: music, soft-drink, movie and sporting-goods manufacturers, though none have been announced so far.
Not all analysts are as enthusiastic about the venture as Mr. Lilley. "There's probably a [limited] niche for free" mobile service, said Julie Ask, research director, Jupiter Research. Referencing the failed ad-supported Internet service providers of the dot-com era, she noted that providers like AOL, which charge customers, are still around.