US-based FreedomPop supplies Sim-only deals for free, with a basic level of minutes and data – meaning low-level users could stop paying for calls and texts altogether – while it also offers free international calls to 60 countries.
The move will put pressure on the existing mobile phone players to lower costs.
FreedomPop has signed a deal in the UK with existing operator Three and an as yet unnamed second network and will switch users between the two, depending on which offers the best mobile signal.
The firm, which is backed by Skype founder Niklas Zennstrom, makes money by “upselling” users on other services such as extra data, texts or voicemail.
Chief executive Stephen Stokols said: “Basic users will have free access but those who want more will have to pay for the extra service.
“It’s like EasyJet and Ryanair, which charge basic fees on seats but you pay for baggage and extras.”
The free deal includes 200 minutes of talktime, 200 texts and 200MB of data a month, while customers also get free international calling to more than 60 countries and free unlimited calls to other FreedomPop members.
Experts said the deal could be attractive to people who want a second phone – perhaps to leave in the car as an emergency handset.
Rob Kerr, mobiles expert at uSwitch.com, said: “A free Sim with a free allowance of minutes, texts and data might sound too good to be true, but it could just be enough to appease the truly entry-level customers.”
He added: “The more data-hungry users should be careful about out-of-bundle charges and make sure they do their research before they go over their allowance.”
The company also plans to launch Jetsetter, a free roaming data Sim launching later this year, and is also to roll out its Sim-only services to other European countries in the near future, including Belgium and Germany.
The British mobile phone market has come under fire recently for a lack of competition after Three and O2 announced a merger, reducing the number of major players in the marketplace.
However, demand for cheaper and Sim-only deals has grown as customers opt to move away from lengthy contracts which tie them in for up to two years.
BT recently re-entered the sector with cheap Sim-only deals for its existing customers – ten years after it exited the mobile phone market when it offloaded its business to O2. A recent campaign from consumer group Which? found that many mobile phone users are continuing to pay for handsets which are already paid off.
Most contract deals include both the cost of buying the device and separate fees for calls, texts and access to the web – which means that many customers pay off the cost of their phone well before the contract comes to an end.