$25 smartphones + one year unlimited browsing = profit!

Ontario-based Datawind offers entry-level smartphones and tablets starting at $25 – including one year of unlimited web browsing. The service has launched in India and is in talks to expand to countries in Southeast Asia and Africa.

Suneet Singh Tuli, CEO of Datawind, said that a large market segment is still not exposed to mobile data. Of Indonesia’s 250 million people, 50 million have no mobile phones, and 100 million handsets 2G feature phones.

To achieve rock-bottom prices, the Datawind phones are designed to be “good enough” using last-generation ARM Cortex A7 1.2 GHz dual-core CPUs and 512MB of RAM. Tuli said that the system-on-a-chip costs $2.50 today compared to $15 just a couple of years ago. Yet this budget chipset packs more power than the 2nd generation Apple iPad.

Datawind compresses web pages on a server before being delivered to the device. A typical 2MB CNN page is compressed to 70KB.

Unlike Facebook’s Free Basics curated selection, the entire internet is available for users to browse. Nor does Datawind engage in ad-injection or substitution.

The company partners with telcos to buy data wholesale. In India they started with Reliance and Telenor and are adding more partners. While one year of unlimited web browsing is included, once they’ve had a taste of smartphones, many users choose to add-on voice packages or data packages for video streaming – this is how Datawind can negotiate to buy data at such low rates.

For the telco this is about customer acquisition, not ARPU.

“While we are not yet overall profitable, we are EBITDA profitable,” said Tuli. “We are not selling at a loss. For it to be sustainable it has to make commercial sense.”

In India, Datawind claims 34% overall market share and 74% for the under-$100 segment.