Fon Hopes Its Hotspots Will Rival Cellular

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At the heart of Fon is a simple principle: Let me use your hotspot, and I'll let you use mine. Fon users join the network either by purchasing special routers from Fon or by installing the company's firmware on a compatible Wi-Fi router. Fon routers do not provide open access: all users must sign in.

Once registered, future Fon users will have a choice of participating in one of two ways (named in honor of Linux creator Linus Torvalds and Microsoft founder Bill Gates). "Linus" users' access points will provide free access to other Fon users, and in exchange Linuses will be able to use any Fon hotspot in the world free of charge. "Bill" users, like nonmembers of Fon, will pay $2 per day for access to other people's Fon hotspots; but, in return, they'll be able to charge $2 per day for access to their own hotspots, a fee that Fon will split with them 50-50.

The Fon network, which is in beta testing, currently supports only Linus users. A second version of the network software, with support for Bills, will be released by the end of May, Varsavsky says.

The company also plans to let users customize their routers' welcome pages, so that people who sign on at a Fon hotspot can see information placed there by the owner, such as a map of the neighborhood or list of favorite local cafes. "People will socialize through their Wi-Fi," says Varsavsky. "You move to a neighborhood, nobody knows you, and then you start sending your Wi-Fi signal, and people will get to know you."

Internet service providers (ISPs) have traditionally cast a jaundiced eye on users who allow neighbors and passers-by to share their broadband Internet access via Wi-Fi. However, Varsavsky claims that ISPs are fans of Fon, because it discourages freeloading. Fon routers are open only to other Fon users -- who by definition have their own routers and broadband connections elsewhere -- or to non-Fon users who are paying the $2 daily fee.

Indeed, Fon has already signed co-marketing agreements with two European ISPs, Glocalnet in Sweden and Jazztel in Spain, to sell Fon routers to their customers. (Varsavsky is also a cofounder of Jazztel.) Fon has also attracted some high-profile backers, with a $22 million investment from Sequoia Capital, Index Ventures, eBay's Skype division, and Google.

"Fon is something that has a tremendous potential," says William A. Stofega, a research manager at IDC, a market research company based in Framingham, MA. "The question is: Can they execute?" Telecommunications companies that also provide Internet access may prove to be nervous about Fon's ability to support Internet-based telephony, which would rob them of long-distance minutes, Stofega says. To succeed, he says, Fon will have to scale up quickly and deliver reliable service. Furthermore, in cities rolling out citywide Wi-Fi networks, including Philadelphia and San Francisco, Fon may have trouble convincing people that it's worthwhile to use a for-fee network.

Other experts are also reserved. "While the Fon model is not a new concept, it's certainly the best-funded community effort of its kind to date," says David Blumenfeld, vice president of marketing for JiWire. "Fon's success will largely be determined by how much prime real estate [urban hotspot coverage] it's able to secure. However, as Wi-Fi moves beyond the laptop into phones, digital cameras, and gaming devices, the market opportunity is only getting bigger."

Varsavsky admits his company faces challenges. Still, they've gathered a lot of momentum in a very short time. Says Varsavsky, "The idea that you share a little bandwidth at home and in exchange roam the world for free is very appealing to people."