When Apple introduced the first iPhone in 2007, many AT&T customers rushed to sign up for the now-defunct unlimited data plan, viewing it as the best way to cover all of their data needs all the time. But ItsOn thinks the answer is actually flexible personalization.

Today, the San Mateo, Calif.-based company is officially announcing $12.5 million in new funding to help fuel its expansion plans. Tenaya Capital led the round, with participation from current investor Andreesen Horowitz.

Back in late Oct. 2012 when ItsOn came out of stealth along with a funding round, it made the bold claim that it would redefine how wireless data plans are packaged and put control back in consumers’ hands. It has been building technology that will allow for more granular and real-time segmentation of wireless data by both networks and customers.

Since then, it has released its first product, Zact, in partnership with Sprint, essentially as a test of how this would all work out.

The first customer

Zact was the first “customer,” if you will, of ItsOn’s technology, cofounder and chief executive Greg Raleigh told VentureBeat in an interview.

So let’s break down how it works: ItsOn has been building a cloud-based, or virtual, platform that enables a wide variety of controls over a wireless data plan. When it partnered with Sprint in order to release Zact (which is run by a small team within ItsOn), Zact was leasing Sprint’s network capacity and spectrum, but the wireless data plan and service were generated from the ItsOn cloud platform.

Zact was essentially just like a wireless network carrier — and ItsOn now wants to help other carriers offer the same flexibility to their own customers via a white-label version of ItsOn.

“We now have a tremendous amount of operator interest,” said Raleigh. He added that the new round of funding will be used specifically for deployment and sales and marketing to more networks.

Raleigh also hinted that in the coming months, the company will announce partnerships with domestic carriers and later in the year, it will be expanding internationally.

Net neutrality?

Naturally, the whole point of building such a technology is the range of new options it brings: Parents can set limits for their children’s phones, employers can subsidize business usage by their employees while they pay for personal uses, a person can temporarily enable international phone calls, and so on.

This level of flexibility and control in turn means less customer churn for carriers.

Another opportunity ItsOn is unlocking is sponsorship — from brands, carriers, and app makers, to name a few. These players could offer users some free data to stream YouTube videos in exchange for watching an ad, for example.

Or better yet, they could use data sponsorships to gain market share in emerging markets — Internet giants are already battling on all other fronts there, so why not?

But this brings up AT&T’s recent attempt to offer data sponsorship from app makers and websites. AT&T’s plan was accused of violating the Federal Communications Commission’s (FCC) net neutrality rules. The argument was that it would create unfair advantage, allowing app and website owners with deeper pockets to get in front of smartphone users through the free-data incentives.

So where does ItsOn stand on this?

“Its a crazy idea that giving something away is not neutral,” said Raleigh. “We just completely reject the notion that this isn’t neutral.”

He pointed out that much of television is subsidized by advertisers who pay enormous prices to put their ads in front of television viewers.

“This is all about personalization and giving people control over what they want and how they want it,” he added.

But beyond the financial and business advantages, ItsOn also wants to help our wireless data networks, which are old and unprepared to handle our growing demands, by helping the carriers manage network congestion.

This will be done at the device level by prioritizing immediate data needs over background traffic (40% of traffic is in the “background,” meaning the user isn’t paying attention to it, like software updating), as well as at the network level (the ItsOn platform knows when a certain device is on a congested base station and when it has reached a less congested one), according to Raleigh.

Now, that sounds like a “smart service,” as Raleigh likes to call ItsOn. But of course, only time will tell if the company will get the partnerships it needs to achieve its goals.

ItsOn was founded in 2008 by Greg Raleigh and Charles Giancarlo, and this round brings its total funding to date to $40.4 million. Stewart Gollmer, Teyana Capital’s managing partner will be joining ItsOn’s board.