Wi-Fi sharing about to get investment
Google, Skype and other investors put $21.5 million in Internet-access sharing venture.
By David Kirkpatrick, FORTUNE senior editor

NEW YORK (FORTUNE) - Aiming to increase access to the Internet, particularly for people away from home, Google, Skype and other leading Internet investors Sunday announced a $21.5 million investment in an innovative new Internet access network called Fon.

The company, founded by Spanish entrepreneur Martin Varsavsky, aims to build a network of WiFi hotspots far larger than those from companies like T-Mobile and Swisscom, none of which have more than 30,000 hotspots worldwide.

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Fon aims to exceed that in its first year, and to have one million hotspots in four years. It hopes to achieve this by getting individuals and businesses to contribute their own hotspots to the network in exchange for getting access wherever they go. Those who contribute access get to use the access of others.

The problem that has limited Internet mobile access, said Varsavsky in an interview with Fortune, is that up until now there has been no standard for sharing WiFi access. Says he: "Ours is a unified sharing standard, but only among those who have paid for access at home."

The challenge is that to do this today violates the service agreement of almost every Internet access provider. Fon hopes to overcomes this obstacle by sharing revenues with ISPs. Founder Varsavsky also believes that by limiting participation to people who pay for their access, it will have the effect of increasing use of broadband ISPs.

Google (Research) and Skype are investing in order to spread the use of broadband. And their participation increases the chance that this ambitious venture will get traction. If Skype, for example, were to promote Fon on its own home page, it would greatly increase the chances that Varsavsky would overcome the chicken-and-egg problem he faces in not yet having enough signed-up hotspots to induce new members to join. He claims at present 3,000 members.

Skype, a Web-based calling company, needs to make it easier for its members to get Internet access wherever they go in order to compete effectively with cellphone carriers. Another upcoming development that will help is the emergence of dual-mode WiFi/GSM cellphones that can work either on cell networks or on the Internet. To read what Skype founders Niklas Zennstrom and Janus Friis have to say about their investment in Fon, go here.

In an interview with Fortune, Varsavsky said the proceeds from this new funding will mostly underwrite the cost of modems for members. Aside from its other challenges, Fon's special software, which members install in their WiFi routers, only works with a couple of existing Linux-based routers. But Fon will now begin buying routers from Linksys for about $50 and selling them to members for $25.

Once you join the network, you're encouraged to put the router in the window so others can get access to it. Fon's special software divides the device into two halves -- private and public. It never allows outsiders to use more than 50 percent of a member's total bandwidth. The software that enables all this was written for Fon by its ace programmer in Germany, known as Brainslayer.

Fon's revenues will come from charging non-members for use of the network. Varsavsky says he won't start charging for about four months, but when he does, the per-hour price will be set at about what it costs in each city for a subway ride. That would be considerably cheaper than wireless ISPs charge now at places like Starbucks.

Varsavsky's track record helped him get financing. He started the second largest Internet company in Spain, portal Ya.com, as well as Jazztel, a large Spanish ISP. He also owns windfarms and a fashion label.

For this venture he not only got Google and Skype to invest as companies, but others associated with them put in money as well. Zennstrom and Friis of Skype invested personally. Sequoia Capital, which invested in Google, and Index Ventures, which invested in Skype, also put in funds. Joining the company's board is Mike Volpi, who runs the router and service provider group at Cisco (Research), and who sat on Skype's board until its acquisition by eBay (Research). In an interview, Volpi called Fon "the Skype equivalent in broadband connectivity."

Varsavsky has lined up a who's who of Internet cognoscenti and blogerati as his U.S. advisory boardópundits Esther Dyson and Jerry Michalski, bloggers Dan Gillmor, Joi Ito, Wendy Selzer, Ethan Zuckerman and Rebecca MacKinnon, Cluetrain Manifesto co-author David Weinberger, telecom expert David Isenberg, as well as New York WiFi activist Andrew Rasiej. Most of them blogged Sunday about Fon. Top of page

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