Google Inc. and eBay Inc.’s Skype are investing in a Spain-based start-up, Fon, which aims to create a network of Wi-Fi users who share their wireless access, some for free and others for a fee, is set to announce a $22 million in funding from big name backers, according to recent media reports.
Two venture-capital firms, Index Ventures and Sequoia Capital, are also investing in the start-up, with all four companies combined putting about $22 million into the company, according to the Associated Press. In its announcement, FON did not say how much each investor was contributing.
Fon is a wireless incarnation of peer-to-peer technology that was first made popular–and controversial–by the pioneering online music-sharing service, Napster.
As the company’s name implies, Fon would allow users of not just laptops, but also mobile phones or the latest portable gaming devices–anything with a built-in Wi-Fi link–to share wireless connections offered by other Fon users.
Fon Technology SL said it has secured 18 million euros in initial financing from Skype, the popular Web-based calling company now owned by eBay, Google, and venture capital firms Index Ventures and Sequoia Capital.
These backers offer legitimacy for Madrid-based Fon, whose goal is to create a block-by-block network of shared wireless links around the globe, by turning users of local Wi-Fi access into an army of "foneros," or people sharing wireless access.
But Fon could face legal challenges from phone and cable TV carriers who bar users from sharing Web access, just as Hollywood sued and put the original Napster out of business for encouraging millions to illegally share music.
It is an awesome idea just like Napster was, with all the consequences that come with it, said Roger Entner, a wireless industry analyst with market research firm Ovum in Boston.
Fon is the brainchild of Argentinian entrepreneur Martin Varsavsky, founder of major Spanish telecommunications and Internet companies Jazztel Plc and Ya.com. FON’s idea, floated just three months ago in a Web posting by Varsavsky, is to sign up people who have Wi-Fi hotspots in one of two ways.
"Linus" members, named after Linus Torvalds, who created the freely distributed Linux software, will share their hotspot with other Linus members for free.
"Bill" members, named after Microsoft founder Bill Gates, will charge for access to their hotspot. FON will get some of that revenue, and share it with Internet service providers, or ISPs.
Fon’s founder said his strategy is to bargain with Internet Service Providers (ISPs) and vastly increase their audience.
"My heart is with people who invest in networks," Varsavsky told Reuters in an interview late last week. "We befriend the ISPs by sharing revenue," he said.
Since then, the network has gained 3,000 Linus members since going live in November. There is no software yet for Bill members, but Varsavsky expects it to be ready within four months. Linus software is so far only available for Wi-Fi routers from Linksys, a division of Cisco Systems.
FON faces a hurdle in that most ISPs prohibit subscribers from sharing internet access with people outside their household. Many broadband subscribers share their access now for free, though, and it is hard for Internet service providers to stop them.
Varsavsky said he also holds out hope of convincing potential adversaries among established ISPs such as Telefonica, Deutsche Telekom, AT&T and Time Warner of working with his "foneros."
Varsavsky wants to partner with ISPs to get them to allow their subscribers to set up FON hotspots. It has signed up a Swedish ISP, Glocalnet, and is in discussions with U.S. companies.
Traffic from a FON-connected hotspot would be easy for an ISP to identify, said Glen Fleishman, editor of the Wi-Fi Networking News site, because users have to authenticate themselves at a FON server.
Internet subscribers who install Fon software to make their wireless routers able to share bandwidth with other Fon users are then allowed to freely roam the Fon network around town or worldwide and find wireless connections as they go.
Fon needs only two to four participants, or foneros, per city block to give good wireless coverage, Varsavsky maintains. If a user is part of Fon, they receive wireless access as they roam for free. Non-Fon members pay for Wi-Fi service, which Fon plans to split with local Internet access providers.
"You first have to become a customer of an ISP… Then you can become a ‘fonero’ if you donate Wi-Fi," Varsavsky said. "If you do not donate, you are not a ‘fonero."’
Skype’s Internet telephone service works over wireless connections and a cell-phone-like device is in the works to take advantage of that fact.
FON has a great idea to help people share Wi-Fi with one another to build a global unified broadband network, and were happy to lend support, Skype Chief Executive Niklas Zennstrom said in a statement.
FON’s idea is not entirely novel — in fact, several companies and associations have tried to tie together free Wi-Fi hotspots into networks, but none has succeeded on a large scale.
The problem with all these free projects is that they fail because everybody wants to be a freeloader and nobody wants to provide Wi-Fi, said Varsavsky. FON, on the other hand, demands reciprocal sharing from its Linus users.
Mark Harrad, a spokesman at Time Warner Cable, said the company was not aware of FON’s plans. Its terms of service prohibit its 4.8 million residential broadband subscribers from sharing their connection outside the household.
Wi-Fi was first popularized by grass-roots technology advocates in high-tech centers around the world, who sought to create shared neighborhood networks. It is this grass-roots spirit that Fon seeks to tap.
That is a great idea, but you are breaking the law, Ovum’s Entner said flatly. It is treating Wi-Fi as communal property when it is not. While sharing Wi-Fi connections remains commonplace among consumers, the situation exists because ISPs have, by and large, been reluctant to enforce their user agreements banning this.
There are also commercial Wi-Fi networks built by T-Mobile USA and Boingo Wireless with hotspots in more than 50,000 locations. Varsavsky hopes to have a much larger network by the end of the year because FON doesn’t have to create the hotspots by itself.
Fleishman said FON has a chance to reach a critical mass of users, but it will be competing with free or low-cost municipal Wi-Fi networks in several cities. Google has itself offered to build a free Wi-Fi network to cover San Francisco.
Representatives at Google did not return messages seeking comment on the search engine’s investment in FON.