it’s no longer necessary to put that risk on customers. If the company can’t terminate a customer’s contract, that customer owes nothing. Colgan says so far, the startup has broken every contract it’s been asked to terminate.
CellBreaker has found customers via social media and word of mouth. But the company also draws revenue from “second tier carriers,” smaller companies that offer service by leasing network capacity from the larger carriers. Republic Wireless, Consumer Wireless, and TracFone are among these providers that offer service without contracts. Colgan won’t name CellBreaker’s partners, however. The startup, which was built on breaking cell phone contracts, is now bound by a different kind of contract—a non-disclosure agreement.
The cost for any carrier to land a new wireless customer can range from $300 to $425 per customer. T-Mobile, for example, spent an average of $320 to acquire each new customer in 2013, down from $394 in 2012, according to the company’s annual report. Rather than spend on expensive marketing campaigns to get new customers, some smaller carriers pay CellBreaker to send customers their way.
“If we’re able to get leads out of a contract and send them to a carrier, they’re actually willing to pay us a referral fee because it saves them money,” Colgan says.
CellBreaker isn’t the only company looking to help consumers exit wireless contracts without triggering fees. CellSwapper, TradeMyCellular.com, and CellTradeUSA help consumers exchange unwanted cell phone contracts. CellSwapper and CellTradeUSA charge less than one-third of CellBreaker’s current $77 price; TradeMyCellular is currently free. Colgan says he remembers liking CellSwapper’s idea when he first learned of the Australian company’s offering, well before he founded CellBreaker. But he later soured on the concept of cell phone customers exchanging their contracts, which he now says has too many steps, any one of which can hold up a swap. For one, the consumer holding an unwanted contract has to match up with someone who wants that contract. That takes time. And carriers that hold the contracts still control the transaction—they have to approve the trade.
Colgan points to another limiting factor to contract swapping services: they focus only on cell phones. But customers are stuck in contracts across various services such as Internet service, cable television, and gym memberships, he explains. Early next year, CellBreaker expects to launch an offering that will help consumers exit additional services free of early termination fees. CellBreaker is already conducting beta tests with cable television and Internet customers.
In the meantime, CellBreaker is busy on software upgrades that will automate the parts of the contract-breaking process that have been manual. Automation is key not only to speed up contract terminations for customers—CellBreaker pledges to break a contract in seven days or less—but also to expand the company. Colgan says potential investors he’s spoken with have expressed interest in the concept but want to see steps taken toward scaling the CellBreaker offering to reach more users.
CellBreaker has been mostly self-funded, though the company did take on an investment from retired Research in Motion software executive Mike Doub, who is now CellBreaker’s software architect. Another hire to the four-person company is chief technology officer Zach Colon, who recently left a software development post at McKesson Corporation (NYSE: [[ticker:MCK]]) to lead CellBreaker’s software automation efforts. CellBreaker’s hires and software initiatives have been supported in part by a $50,000 grant from NC IDEA, an organization that supports North Carolina startups.
The new CellBreaker software is expected to roll out in October. At about that time, Colgan plans to seek the company’s first outside investment, a fundraise targeting $500,000 that would help prepare for the launch of new contract-breaking services. Colgan says the push into new markets is driven by current CellBreaker customers who have inquired whether the service would work for breaking Internet or cable contracts.
“Over the last year, they’ve been asking us so we know we’re on to something here,” Colgan says. “We had an inkling, but customers are confirming that.”
