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FON’s new Wi-Fi router is a community hotspot

24 Oct

Buyers can use other FON routers anywhere, free of charge.




FORTUNE — The “sharing economy” seems to be working for cars and vacation rentals, so why not Wi-Fi?

FON, a Madrid-based company, is trying to cash in on the growing collaborative consumption trend by offering a new, $59 router that turns home Wi-Fi networks into community hotspots. Users open up their network to other FON members, and in turn are able to use any other FON Wi-Fi hotspot free of charge. “It gives you the ability to roam the world for free,” says Martin Varsavsky, CEO and founder of FON.

Shared Wi-Fi may sound like a novel idea, but FON’s actually been around since 2006. While it’s had some success abroad (the company says its routers power a total 12 million hotspots globally), this is its second attempt to make a splash in the U.S. market. The first one didn’t work out so well.

“When we started, it was a world of laptops, and frankly there wasn’t enough demand to drive FON,” admits Varsavsky. “Now it’s a world of smartphones and tablets. There’s much more demand for Wi-Fi now, and everyone has a Wi-Fi device in their pocket.”

American investors embraced FON early on (in 2006 it raised $22 million from Index Ventures, Sequoia Capital, and other notable firms). But mobile operators weren’t so quick to fall in love with the quirky company, which refers to its users as “Foneros.” Back then, in the pre-iPhone era, carriers saw Wi-Fi as a threat to their cellular networks. Fast-forward to today, and they’re trying to offload mobile network traffic by notifying users when they’re in the vicinity of a Wi-Fi hotspot, among other tactics. Global operators like BT (BT) and Deutsche Telekom (DTEGY) have invested in FON. In the U.S., the company recently partnered with AT&T (T) — customers who pay a premium are now able to access FON’s network of overseas hotspots while traveling abroad.

MORE: How Europe is rocking the startup world

But like other sharing services, FON’s value is determined by the size of the community it spawns. And despite the 12 million global hotspots it boasts, the company’s product doesn’t make much sense outside of urban areas, where proximity to other shared networks could appeal to users.

Lucky for FON, it’s got a nice new trick up its sleeve — the latest, enhanced Fonera router lets users’ friends sign in with their Facebook (FB) credentials, no other password required. In other words, if a family member or friend that’s in your online social network is visiting your home, they can log onto your Wi-Fi network using their own Facebook credentials. (Anyone who has had houseguests and ever blanked on their long and unmemorable Wi-Fi password will likely appreciate this feature). In order to ensure security and privacy, FON says its new router separates a user’s traffic from their friends’ by utilizing different Wi-Fi signals. “One of the simplest obstacles to Wi-Fi has been passwords,” explains Varsavsky.

According to FON, the new router has been tailored for the U.S. market, and will be available on and FON’s website. Whether its Facebook friends-recognizing feature is enough to spur critical mass — and a community of U.S.-based, Wi-Fi loving Foneros — this time around remains to be seen.

Fon breaks into the U.S. with AT&T Wi-Fi roaming deal

25 Sep

SUMMARY:The Spanish Wi-Fi sharing community has scored what it suggests will be the first of multiple carrier deals in the U.S., giving its members access to AT&T’s 30,000 hotspots around the country.

The Madrid-based Wi-Fi sharing community Fon is finally moving into the American market, through a Wi-Fi roaming deal with local carrier AT&T.

Fon’s customers, known as “Foneros”, have been able to use each other’s Wi-Fi connections since the company launched in 2005. But the real boosts to the community come from deals with big carriers who want to give their own customers free Wi-Fi access while they’re on the move – Britain’s BT was the first big win 6 years ago, and this year has already seen Fon sign with Germany’s big player, Deutsche Telekom.

Now it’s AT&T’s turn. In a statement on Tuesday, the companies said AT&T customers would be able to access hundreds of thousands of Fon-friendly hotspots around the world, through the AT&T Wi-Fi International app. The app gives customers 1GB of free Wi-Fi data usage per month, if they already subscribe to a Data Global Add-On package.

Meanwhile, Fon’s users will get their first big sprawl of hotspots in the U.S., as AT&T’s network has 30,000 of them in restaurants, hotels and stores.

In a blog post, Fon noted that its customers can already access almost 12 million hotspots around the world. It also suggested that further American deals could be imminent:

“This deal is only the first step in our mission to cover the U.S. (and eventually the world!) with Wi-Fi. Stay tuned for more exciting developments in the near future!”

The carriers that sign with Fon get to use the network’s reach as an extra draw for prospective customers, but they also have another motive: offloading. As mobile broadband networks come under strain from increased usage, it becomes a bright idea to offload that traffic onto Wi-Fi hotspots wherever possible.

Some of those hotspots will come from communities such as Fon, but the mobile industry is also working on ways to integrate Wi-Fi into their own networks as one of several complementary wireless technologies – this is known as the heterogeneous network or “hetnet” approach.

In Europe, proposed changes to the EU’s telecoms rules would ease planning restrictions around such deployments and force regulators and ISPs to allow their customers to share their connections via services such as Fon.


Comcast mimics Fon, creating a crowdsourced hotspot network in millions of homes

11 Jun

Wi-Fi logo
SUMMARY:Comcast plans to crowdsource its Wi-Fi network, turning millions of home gateways into public hotspots. It’s a revolutionary, and probably controversial, move that could benefit its customers immensely — as long as it doesn’t pimp out their broadband connections.

As Comcast and its cable partners revealed today it already has the largest Wi-Fi hotspot in the U.S., but the cable provider has plans to make that Wi-Fi network bigger – far bigger.

Monday at the National Cable and Telecommunications Association conference in Washington, D.C., Comcast said it has begun shipping a new version of its wireless gateway to residential broadband customers that pulls double duty as a private Wi-Fi router and a public hotspot. Basically the Cisco Systems gateway transmits two signals — each with separate SSIDs – each functioning as a separate network. The family that owns or rents the router can access the first network, but the second is open to any Comcast broadband customer.

A FON router

A FON router

This kind of crowdsourced broadband isn’t new. It was pioneered by Spain’s Fon years ago, but it’s recently gained traction among traditional telecom services providers looking for a cheap way to expand broadband capabilities to customers outside their homes. The biggest worldwide practitioner is France’s Free Mobile, whose parent company Iliad is a residential broadband provider like Comcast.

Iliad opened up its 4 million home wireless home gateways to all of Free’s mobile phone customers with the idea that Wi-Fi could carry the bulk of its mobile data traffic and allow it to offer much cheaper mobile service. Whether the economics of Iliad’s plan are working is debatable, but there’s no question it’s cheap. Its rock-bottom mobile plans set off a pricing war in France.

But where Free and Fon both fall flat is in the inconsistency of their networks. As you would expect with home broadband, those networks are centered in residential neighborhoods, but where most people need Wi-Fi connectivity is in densely trafficked public and business areas. Comcast, however, seems to have solved that problem — at least in some key major cities – with a two-pronged Wi-Fi approach. It and its CableWiFi partners have built outdoor public hotspot networks in dense urban areas where traffic is highest.

Comcast subscribers can move between those public and private hotspots seamlessly. If it does wind up installing these gateways in its 20 million broadband customers’ homes, it will have quite the Wi-Fi network indeed.

A network by the masses, for the masses

Many Comcast customers might bristle at the idea of letting other people use their broadband connections even if their traffic is kept separate and their own connections are secure. I would argue that those customers should keep an open mind, though. These kinds of crowdsourced broadband arrangements are ultimately in everyone’s interest. What most people deal with today is plentiful and cheap bandwidth at home and at work but expensive and limited bandwidth everywhere in between. If everyone teamed together to share their broadband with one another, then everyone suddenly starts getting solid connections wherever they go. It might sound like a bit of a utopian model, but it’s one that can easily be managed with technology.

Comcast That said, Comcast has to keep itself in check if it’s to keep this social contract equitable. Comcast can’t apply a stranger’s data usage against your data cap, and if tries to do so it would have a mighty big class action lawsuit on its hands. Also if Comcast tries to sell access to this residential hotspot network to other providers – for instance, its new comrade in mobile, Verizon Wireless — then it will be violating the social contract with its customers.

Comcast has every right to ask its customers to give up a little to gain a lot. But it can’t pimp its customers’ broadband connections out for its own financial benefit — not without compensating them, at least.


Deutsche Telekom flirts with crowdsourced Wi-Fi through Croatian Fon deal

6 Feb


So, is Deutsche Telekom planning to invest in Fon or isn’t it? As my colleague Kevin Fitchard has pointed out, it would be a smart move given the potential for offloading cellular data traffic to Wi-Fi, but we still don’t know whether the rumors will turn out to be true.

What we do now know, though, is that Hrvatski Telekom, the leading Croatian ISP that is majority-owned by Deutsche Telekom(s dt), has just launched a Fon tie-in. The offer was revealed today, according to local blog Netocratic. I’ve asked DT whether this is a precursor to rollouts in other countries, but they declined to comment.

Fon is a crowdsourced Wi-Fi network that came out of Spain half a dozen years ago. The deal is this: if you hook up a Fon device to your router and share a segment of your bandwidth wirelessly with others, you become a…

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BT Broadband customers could be loosing out?

28 Sep

People who subscribe to BT broadband could be loosing out on their bandwidth as well as leaving themselves open to a plethora of problems! On the 4th October 2007 BT announced a collaboration with Fon, a Spanish company which deals in dual access WiFi to help create a huge WiFi network accross the country utilising BT WiFi hubs as the broadcasting unit. The idea is that if you have a Fon enabled device then you are given a unique access credential meaning that you can use any other FON hotspot in the UK free of charge.

There are some rather big short-comings to this otherwise interesting idea. When customers signed up to broadband packages, they were not effectivly told that the FON connection would absorb some of their bandwidth. It is also difficult to find help on how to disable the FON feature on the hub in order to maximise the bandwidth that one has actually paid for. Nevertheless BT insist that “…If customers agree to offer part of their Wi-Fi to the public, they can use other Fon hotspots for free, as well as collect a small portion of the revenues made when their Wi-Fi hotspot is bought”.

The biggest question hanging over this concept is who would be held accountable for any illegal activity that occurred over the connection? Patrick Clark, head of telecoms and partner at law firm Taylor Wessing, said “You would have to demonstrate it was not you committing the illegal activity, which could involve handing over your PC, laptop or any internet connected devices. This would probably present enough doubt to put off a filesharer case as it wouldn’t be worth the £2,000 – £10,000 the music company would win. However, it probably wouldn’t be enough to put off the police investigating child pornography, for example. If you are unlucky enough, and even if you didn’t do it, you will find it difficult in the least to clear your name.”


Open Access: How Fon wants the world to be a giant Wi-Fi hotspot

22 Aug

The sun is shining on a March morning in London, and Martin Varsavsky appears relaxed in jeans, a white shirt and a navy blue jacket, as though he’s heading to the beach near his Menorca home.

Varsavsky’s dress sense is low-key, but his business style isn’t.

As one of the most accomplished entrepreneurs to come to prominence during two decades of European telecoms liberalisation, Varsavsky, 51, has spent the past six years doing something that many industry analysts describe as either pointless or impossible: he is attempting to build a global Wi-Fi network from the bottom up. Varsavsky says his company, Fon, was always intended as a network that would “build itself”. By this, he means that Fon always wanted to avoid the “huge capital expenditures” involved in laying cables under streets or placing base stations atop buildings.

Today, Fon has more than four million street-level access points through which users can log on to the internet. This makes it the world’s largest Wi-Fi hotspot operator. The company is essentially building a business on millions of underused Wi-Fi routers that largely stand idle in millions of studies around the world. As Varsavsky puts it, Fon is based on the “discovery” that “all the Wi-Fi signals were already there”.

Building a telecoms network out of thin air is an enormous task. Niklas Zennström, the cofounder of Skype, invested in Fon six years ago. “The road to changing a market,” Zennström says, “is rarely a straight highway. There are a lot of turns. You have to not quite reinvent yourself, but figure out along the way how to get there.”

At Fon’s headquarters in Madrid, pragmatism has replaced idealism, and corporate near-death has been followed by resurrection. Much of the credit must be given to the founder’s sheer persistence. Last year, after years of struggle to move the needle, Varsavsky’s brainchild turned a profit for the first time, delivering €28 million (£25 million). Looking ahead, the Spanish-Argentinian entrepreneur foresees revenues of “hundreds of millions”.

Fon and Wi-Fi are coming of age together, Varsavsky argues. Both, he says, will play a major role in shoring up mobile networks that are creaking beneath the huge volumes of data traffic generated by more than 600 million smartphones.

Only a few years ago, most mobile-industry executives would have bet against the notion that Wi-Fi could help to make the mobile web fit for purpose. Today, the idea remains controversial, but seems less unlikely. As Ben Evans of Enders Analysis puts it, mobile operators “have started to get Wi-Fi religion”.

Just like the six other companies and three non-profit foundations Varsavsky has launched, Fon is driven by its founder’s commitment to the cause. “I always build companies around ideas that fascinate me,” he says.

The idea for Fon came to Varsavsky one afternoon in 2005, while he was wandering the streets of Le Marais, in Paris, searching for a Wi-Fi connection.

“I had a wireless modem and I was being killed by these roaming charges,” he says. “Everywhere I looked, there was lots of Wi-Fi but it was all locked. It was three o’clock in the afternoon. All of these people were out at work. I thought: what a waste.”

He wondered whether Parisians could be persuaded to share their Wi-Fi if the favour was returned when they travelled through Europe and visited Madrid or London. Thus was born what Varsavsky calls “a global federation of routers”. At first, Varsavsky says, he “couldn’t see a business model” in his idea. “But I thought it could be a great thing. I thought, ‘I’m going to develop some firmware that people can download into their router.'”

By November 2005, Fon’s firmware was ready. Users could install it on the hack-friendly Linksys WRT54G router, which was built around Linux. Subsequently, Fon developed the Fonera, its own low-cost router custom-built for sharing. Varsavsky decided to give away the first routers to seed the market. After that, he would sell them at, or around, cost. In an early blog post from December 2005, Varsavsky guessed that Fon would need an installed base of one million units to generate what he called “a global Wi-Fi signal”. All of this could be achieved, he reckoned, for little or no cost.

Varsavsky had significant experience of the enormous investments required to build networks in the traditional way. Starting out with $200,000 in 1991 (the equivalent of about £200,000 today), he built Viatel into an independent telecoms operator with a $50 million turnover. It made its debut on Nasdaq in 1996, attracting investors such as George Soros along the way. By the end of the decade, Viatel was ploughing $1 billion of high-risk junkbond finance into an 8,700km-long fibre-optic network that connected more than 40 cities across Europe. Yet this was the telecom-bubble era. Viatel collapsed into chapter 11 bankruptcy proceedings in May 2001, three years after Varsavsky’s departure, leaving investors nursing losses of at least $1.5 billion.

In 1998, Varsavsky started work on Jazztel, a telecoms and data-transmission operator that (in his words) “dug up the streets of Spain” in order to challenge the might of Telefonica. Today, Jazztel remains the nation’s second-largest quoted telco.

Fon was a threat of different order. From the start, the telcos feared the sort of challenge that peer-to-peer networks such asNapster and Kazaa had brought to the music industry. As Zennström puts it, telcos started to worry that Fon users “would start sharing access with their neighbours”. And it seemed to challenge mobile operators, too. As early as 2001, a London-based Nomura telecoms analyst called Keith Woolcock described Wi-Fi evangelists as the “barbarians at the gate” who might prevent mobile operators from earning a return on 3G spectrum acquired for €110 billion during government auctions in 2000 and 2001. If free Wi-Fi flooded the world’s cities, 3G might start to look like an expensive luxury.

Varsavsky didn’t discourage the notion that he was hell-bent on stirring up trouble. Indeed, his early blog posts on Fon’s website read like brusque communiqués from a revolutionary’s HQ. Today, he smiles at the thought: “It’s true. I was on a mission. In the beginning we were against the telcos. People were saying we were the peer-to-peer of Wi-Fi.”

When Fon exhibited at an IT trade show in Madrid in late 2005, its stand was plastered with the iconography of the leftist Spanish republic for which George Orwell fought in the 30s. Like an insurgency, Fon recruited “Fonero leaders” who agreed to popularise Varsavsky’s plan around the world. Varsavsky also did everything he could to align Fon with the explosion of user-generated innovation that had started to transform the tech industry. In San Francisco in 2004, Tim O’Reilly and John Battelle gave a conference opening speech using the expression “Web 2.0” to describe applications built on top of the web, rather than for desktops. Blogging, too, had emerged as a web-native phenomenon that threatened professional journalism. When Varsavsky launched Fon in France in early December 2005, he did so at Les Blogs, the annual blogger conference organised by Six Apart.

The parallels between Fon and these disruptive currents were more than skin-deep. Like Web 2.0, Fon represented an effort to expand the internet’s sphere of influence — to place it at the centre of all connectivity.

Fon’s agitprop identity was underpinned by Varsavsky’s politics. He was born in 1960, and his childhood was defined by Argentina’s military dictatorship, which waged one of the dirtiest of Latin America’s dirty wars against all forms of opposition.

When Varsavsky was 16, his 17-year-old cousin, David, was murdered by paramilitaries. Varsavsky’s father, a Harvard-trained astrophysicist, promptly secured asylum for the family in the US. When asked about his politics, Varsavsky’s answer covers a lot of ground. “In the UK, I would be Labour,” he says. “In the US, I am a Democrat.” He is, he says, “left” on social issues and “green” on the environment. But he is also “more conservative” on economics, where he prefers “less government intervention, more liberal freethinking”.

The common thread in all of this is freedom. “I grew up hating the military, hating fascist dictatorships,” he says. He adds that he has “always been for openness against monopolies”. Predictably, perhaps, Varsavsky went on to spend 20 years chafing against the top-down management style of the telecoms industry. After Viatel and Jazztel, Fon was Varsavsky’s third attempt to overturn the established order.

It didn’t take long for the non-profit ethos to evaporate at Fon. The manufacturing contract for Foneras was burning cash. Time-consuming efforts to squeeze Fon’s firmware on too many different routers cost money. It was time to generate some revenue.

Varsavsky finally found his inspiration in Skype, the internet telephony startup founded by Zennström and Janus Friis. On Skype, it costs nothing to call another user across the internet, but calling a number on a telecoms network incurs a charge. Skype, recently bought by Microsoft for more than £5 billion, uses this revenue to pay the telcos, while keeping a tiny cut. In similar fashion, Varsavsky decided to charge “aliens” — individuals who don’t share their Wi-Fi at home — for connecting to the wireless hotspots created by Fon users who has allowed access to their routers.

With a revenue model, Varsavsky started looking for backers. Zennström invested, as did Sequoia Capital, Index Ventures andGoogle. Fon raised $18 million, and then, in February 2006, Varsavasky took his Fon service global. But the company struggled to make an impact. Varsavsky describes the business model for the first iteration of Fon as “a strategy that didn’t work”.

Users were reluctant to buy Fon’s routers. The alternative — reflashing your own router, and installing Fon’s firmware — was daunting for most. Fon users in the suburbs, where there was little demand, proved happier to open up their Wi-Fi; but in city centres far fewer shared their connections. In the major cities that Fon hoped to turn into a riot of bandwidth, it was hard to find a hotspot.

Demand was problematic, too. “There were just not enough people walking around cities, carrying laptops, trying to “connect to the internet,” Varsavsky says.

There was only one way out of the impasse. Varsavsky set about transforming Fon from his original revolutionary upstart into an establishment player.

“I realised I had to sleep with the enemy,” he says “I had to help them work with us in a model that at first looked dubious to them.

In June 2006, Varsavsky took to the stage at Google’s Zeitgeist conference in Hertfordshire. Sitting opposite him was Ian Livingston, the (at that time) 41-year-old former Freeserve executive who, a year earlier, had been appointed to run BT’s sprawling retail operations.

Google had lined up the two men for a debate on the future of telecoms. “He was the big corporate guy and I was the up-and-comer with an idea that would be potentially harmful for the telcos,” Varsavsky says. “Ian had probably never heard of Fon, or knew very little about us, but he was very open-minded.”

The conversation continued off stage. Varsavsky pitched to Livingston by drawing a parallel with the music business. Fon, he argued, was the kind of peer-to-peer network that could encourage customers “to sell music to one another on the labels’ behalf “.

Livingston, who became chief executive of BT two years later, says he found Varsavsky “enthusiastic, committed and entrepreneurial”. He adds: “I had no instinctive reaction against Fon at all. We weren’t blinded by mobile as the only answer. We’d known all along that Wi-Fi had a lot of potential.”

Yet according to some analysts, BT Openzone, the company’s network of commercial hotspots, was proving expensive to build and generating fewer revenues than anticipated. If this was the case, BT wasn’t alone.

By 2006, an American ISP called EarthLink was trying to deliver on its own ambitious plans to build municipal Wi-Fi networks. Google had partnered with EarthLink to install free Wi-Fi across San Francisco. Soon after Varsavsky met with Livingston, it became clear that these efforts were heading for the rocks. Inlate 2007, the city authorities in San Francisco scrapped Google’s city-wide Wi-Fi plan.

From the start, Varsavsky had argued against Wi-Fi networks such as these. “Municipal Wi-Fi comes from the street to the home,” he says. “It only occasionally sneaks indoors. Our model is more useful, much better. The physics of Wi-Fi means it’s much easier to go from indoors to outdoors than the other way around.”

Fon was also much cheaper to deploy than BT Openzone or municipal Wi-Fi, which was costing EarthLink — by Varsavsky’s estimate — $1,000 for each Wi-Fi-enabled lamp post. Like EarthLink, Varsavsky says, BT needed “an affordable” alternative.

Livingston dismisses as “complete nonsense” the suggestions that problems with BT Openzone opened the way for a deal with Fon. But Livingston could see value in Varsavsky’s argument that giving Fon to BT Broadband customers would make them more loyal. The broad outlines of a deal emerged quickly. BT would introduce Fon to the mass market by integrating its software into the telco’s routers. In return, as the telecoms analyst Dean Bubley argues, Fon would “make BT Openzone’s footprint look a lot bigger”. Exhaustive analysis conducted by BT would ultimately prove that Varsavsky was right about Fon’s effects on reducing churn.

Varsavsky won’t discuss the financials of the deal. It seems likely, however, that Fon offered its services to BT for little or nothing. This, Varsavsky doubtless hoped, would result in plenty of coverage, which Fon would exploit by selling much more Wi-Fi access to “aliens”. Varsavsky says the resulting revenues have always been “shared” by BT and Fon.

The details were refined when the two men met at the World Cup Final in July 2006. Long before Zinedine Zidane headbutted Marco Materazzi, Fon had formally agreed its first partnership with a major telco. “We ironed out the deal before the game,” Varsavsky says, adding that the change of strategy was necessary. “We could have stuck to the original strategy and totally gone under.

“BT was super important for us,” he adds. “They made us — they believed in us first.” Yet in a bravura conclusion that Ian Livingston might find awkward, Varsavsky adds: “The idea was the same. But we made our rivals part of the global movement. The carriers joined the movement.”

Of course, the deal changed Fon, too. Today, the company’s home page carries a picture of a conservatively dressed male working on a laptop. He’s surrounded by faux-naif sketches of tourist landmarks such as the EiffelTower and Big Ben. The copy offers a straightforward bargain: “Free access to over four million Fon Spots worldwide”.

Varsavsky acknowledges the change. “First, you’re a revolutionary,” he says, “and you want to spread the word everywhere. You want a small group of fanatics, people who speak for you. Then you have to get the rest of the population to like you. They don’t need to fall in love. They just need to find you useful.”

But Fon’s deal with BT, and subsequent deals with telcos in France, Portugal and Russia, weren’t enough to build a sustainable business. In 2007, Fon burned through €16.2 million of its shareholders’ cash. In 2008, post-tax losses were €6.8 million. But it’s the revenue line that jumps out of the accounts: it was flat year-on-year at less than €2 million.

Fon was still tiny and it wasn’t growing. “We had become the biggest hotspot operator in the world,” says Varsavsky. “But we were still just the tallest midget in the market.”

In the UK, Fon had plenty of coverage, but demand still lagged. “There still weren’t enough gadgets connecting to Fon,” says Varsavsky. “We were growing much more slowly than I had expected.” As 2007 drew to a close, he wondered if Fon “might not make it”.

“It was difficult, really difficult,” he says. “I wasn’t meeting the objectives. I thought maybe I was embarked upon something that nobody was interested in.”

Under pressure from his investors, Varsavsky considered shutting down Fon. In the end, however, he decided to cut its burn rate. He made half of Fon’s 100 staff redundant, contacting fellow Spanish entrepreneurs to suggest that they take on his former employees. For those who couldn’t find new jobs, he financed “a kind of trust” out of his own personal fortune, to finance retraining.

Worse was to come. In late 2008, with the global financial crisis in full swing, Varsavsky asked his investors for more funding at a board meeting. According to both Varsavsky and Zennström, who was also present, the response was a chilly silence. In Varsavsky’s words: “Everybody gave up. It was the consensus.”

For Varsavsky, this was a moment of truth. He says: “Generally, in situations like this, entrepreneurs say: ‘Fuck it, I will write off my money.’ Or they say to their investors: ‘I will carry on and dilute the hell out of you.'” Varsavsky did neither. Instead, he started to underwrite Fon’s monthly losses of €300,000 with an open-ended loan. He did so without diluting the shareholdings of his fellow investors.

“I had no idea how much this was going to cost,” Varsavsky says. He adds that he took the decision not to dilute his investors because his partners had been “fantastic”.

“It was my fault,” he says, reflecting on this period. “It was me who hadn’t made my targets.”

Fon persisted, but it was living on borrowed time. But then, out of the blue, two saviours emerged: the iPhone and Android.

The iPhone, says Varsavsky, was “a wonderful product” and, for mobile operators, “a dangerous product”. He adds: “The iPhone was sold because it was fun. But every time you tried to do something fun it would threaten your allowance. For example, it costs me £5 here in London to buy 250Mb of data from Orange. Watching an episode of Mad Men will consume 400Mb.

“The operators said to Apple that they were unwilling to see people paying for Mad Men and have their networks trashed in the process, without receiving any benefit. So the operators said to Jobs: send these downloads to Wi-Fi.”

Having carved out a space for Wi-Fi, the operators needed a strategy to fulfil demand. Varsavsky wondered whether Fon could supply it. Months after the iPhone’s debut on AT&T’s network in the US, reports circulated of bandwidth constraints. In Japan, the world’s most advanced mobile market, something similar was happening.

The iPhone took Japan by storm. “It was the desire of Japanese consumers to watch video on their smartphones that threatened to bring down the networks,” Varsavsky says.

In Tokyo in 2010, he met with Masayoshi Son, founder and CEO of SoftBank Mobile, Japan’s third-largest mobile operator. Son told Varsavsky that, since paying $15 billion to acquire Vodafone’s stuttering Japanese operations in 2006, he had invested $14bn in building out its network.

SoftBank had spent big to accommodate new subscribers attracted by aggressive pricing and star-studded marketing campaigns. “The iPhone means I’m going to have to spend a lot more,” Son said. A deal emerged: SoftBank would buy millions of Fon routers and offer them free of charge to customers who bought iPhones and Android handsets.

On the streets of Japan, Fon’s routers would create a massive community of Wi-Fi hotspots. SoftBank, meanwhile, would pre-install Fon apps on every iPhone and Android handset it sold.

SoftBank has more than 25 million mobile subscribers in Japan. Today, Fon has 900,000 user hotspots there. Most are operated by SoftBank users, many of whom get their broadband from NTT, the former state telecoms monopoly.

This, Varsavsky argues, is the shape of things to come in every other mobile market in the world.

What emerged after the SoftBank deal was a third iteration of Fon: a company that does deals with broadband providers and mobile operators. Fon mark three may have solved its growth problem. Last year, revenues rose fivefold to €28 million. It turned its first profit in September 2009, and repaid €2.7 million-worth of emergency loans.

Varsavsky still talks of his creation as a “network built by the users”. But the truth is that Fon has become an adjunct to telco business plans, a defensive offering.

But it’s a useful offering. Six years ago, Fon was a solution in search of a problem. Today, it’s helping to solve one of the defining technology challenges of our times: how to make mobile networks fit for purpose.

Fon survived long enough for technology trends to start moving in its direction. “Over half of new handsets now have Wi-Fi installed,” Enders Analysis’s James Barford says. “Today, every broadband provider throws in a wireless router for free. Most homes now have Wi-Fi, which they didn’t have five to six years ago.”

Offloading traffic from mobile networks on to broadband might take Varsavsky even further from his original dream of open Wi-Fi networks, shared for free on the streets of the world’s cities.

Evans, Barford’s colleague, points out that the peak hours for mobile data traffic occur between 10pm and 1am. “The problem doesn’t occur on the streets,” he says, “but at home, when people take their iPhones and iPads to bed, to watch video or iPlayer.”

As a result, Fon may become a developer of apps that help us to use networks efficiently — in our homes.

How far can Fon go? Varsavsky, naturally, is bullish; Zennström, one of its investors, says that Fon “has the potential to become a very big company”. He adds: “We’re looking at an explosion of demand for wireless capacity. Fon is in a very good position to take advantage of that. It’s already the winner in this category. What we don’t know yet is how much this category will ultimately be worth.”

Barford doesn’t blanch at the suggestion that Fon might become a billion-dollar-turnover company. “Quite a few small businesses can get to $1 billion turnover if they operate on a global basis,” he says. “It’s certainly possible.”

But it won’t be simple. For, as mobile networks sag beneath the strain of smartphones, Varsavsky’s startup is facing competition.

In Japan, SoftBank isn’t relying on Fon alone. Masayoshi Son is encouraging customers to plug femtocells into their routers. These devices use broadband connections to supplement mobile-phone coverage. Femtocells are effectively the Fon era’s cellular rival.

Dean Bubley, the independent telecoms analyst, notes that O2 in the UK has started talking about building its own Wi-Fi network.

Bubley also cites “a ton of technical work in the industry aimed at making Wi-Fi more offload-friendly, easier and faster”. Apple and Google are “almost certainly” working on their own initiatives, he adds. The risk for Varsavsky is that Fon gets trampled in the rush.

There will be competition too from another source: the telecom industry’s deployment of so-called 4G mobile networks, based around a cluster of technologies known collectively as Long Term Evolution, or LTE. The first deployments are already in place — in markets such as Scandinavia, Japan and Russia.

Will super-fast mobile networks kill off Fon? Varsavsky isn’t worried. “In the end,” he says, “the whole game is this: how much does it cost to pass one meg through a network? Even though 4G is orders of magnitude cheaper than 3G, Wi-Fi remains orders of magnitude cheaper than 4G.”

Not everyone is convinced. Glenn Fleishman, a US-based tech pundit who described the “hype” surrounding Fon in 2006 as “hilarious”, hasn’t changed his view.

“People don’t stand outside someone’s house to get Wi-Fi,” says Fleishman. “People want to either use a service while walking, which necessitates 3G or a [high-powered] Wi-Fi zone, or they want to be in one place, usually sitting.” The US, he says, is already awash in free Wi-Fi.

Ben Evans offers a sobering assessment. “The cynical view of Varsavsky would be this: he’s got this cool business, he talks to interesting people all day, he flies around the world. Instead of doing ocean-going racing, he’s doing Fon. But will he solve a real problem experienced by real people? I just don’t see that you can squeeze that much value out of Fon’s business model.”

If you have little or no direct competition, an old saying suggests, your business model is either brilliant or broken. Even Var- savsky has occasionally wondered if Fon was the latter.

When he brought his original idea to Google in 2005, he says, Sergey Brin liked it. But others didn’t. “I didn’t blame them,” Varsavsky says. “I had my doubts. There was an idealistic element that was too much even for some people at Google.”

Six years on, Varsavsky remains unfazed. “I love to prove people wrong in the long term,” he says.

Source:  By Peter Kirwan 12 August 11


Fon: “Operators cannot afford to not have a wifi strategy”

25 Jul

Alex Puregger is COO and director of the board for Fon, Spain and is speaking at the Broadband World Forum 2012, taking place on the 16 – 18 October 2012 at the RAI Exhibition and Convention Centre, Amsterdam, the Netherlands. We speak to him about why in a mobile broadband world Fon’s wifi based business model is set to be more relevant then ever.

How has the Fon network been developing over the last 12 months?

In the past 12 months, we have grown tremendously. At this time last year, we were at just over four million hotspots. Now, we have over six million hotspots in more than 100 countries. We have also signed three new partnerships: Belgacom (June 2011), Oi (October 2011) and Netia (February 2012), with many more in the pipeline.

As 4G rolls out worldwide will public wifi hotspots continue to be relevant?
4G will make people addicted to fast mobile internet, so with the rollout of this technology, mobile operators will more than ever be looking to offload their data traffic. Therefore, public wifi hotspots will become more relevant than ever, since they will enable mobile customers to seamlessly connect to public wifi hotspots, easing network traffic. 4G will not be a substitute for wifi or even 3G. All those technologies will complement each other, because the data traffic will be just too huge for one technology only. Naturally, we at Fon are all about wifi, and we believe in wifi as one of the most established and distributed access technologies around the globe. One that can contribute in various ways to help operators overcome their challenges, not only on the data traffic front, but also when it comes to differentiation. Nearly all gadgets nowadays come with wifi included, so it’s only natural to use this technology.

What is the business case for Fon? How do you monetize?
Fon enables operators to increase revenues by tapping into new customer segments. Additionally, they will gain from differentiation; after all, we’re a global community of over six million wifi hotspots. There are the obvious benefits that come with data offloading. This powerful combination of additional revenue and savings is the value that Fon brings to every operator. We then monetise the network on the revenue site, where we apply a revenue share system. Right now, our revenue comes both from selling access passes to individuals who are not Fon members, and from our wholesale agreements which give third parties access to the network.

How does Fon fit into a carrier’s overall mobile strategy?

Fon’s offering is a powerful complement to the service already offered by mobile operators. Nowadays, operators simply cannot afford to not have a wifi strategy, first because they know that with all of the connected devices currently around, and all of the data-heavy applications that are coming to market, there will soon be a ‘data tsunami’ that simply cannot be handled by 3G or 4G. Second, because customers want wifi connectivity since a number of their favorite gadgets come in wifi-only versions.
When it comes to our partners, Fon is an integral part of their mobile strategy. And thanks to our innovative wifi solution, mobile operators from all over the world want to work with us, and include Fon in their mobile strategies.

Connecting to unfamiliar wifi access points is still a pain point. What work is being done to improve this?

The fact is that the customer experience with wifi is unfortunately still decentralised and different with every different access point – for example, some private hotspot owners just open up their network entirely. However, wifi was developed as a private, and not as a public access technology. The silver lining is that this is changing, together with the widespread use of wifi that we see today. A large wifi footprint such as ours that is harmonized in its access controls and operations can make a difference. Our mobile applications already allow for automatic connection of smartphones with many of our partners, so our users just connect wherever they find a Fon Spot. We are also seeing much more improvement in this area, particularly with the wifi Alliance’s Passpoint program. This program aims to make it easier for users to connect to wifi hotspots, along with easier roaming and network management.

In a few years, connecting to a wifi hotspot will be completely different from what we’re used to.
In a few years, wifi hotspots will behave much like mobile networks do nowadays, in the sense that seamless auto-connection will be the standard. For the end user, it will be a world of difference because they will be connected and able to load all of their applications at all times, so their home experience will be with them wherever they go. In fact, they will not even be able to tell wifi , 3G and 4G networks apart, they will have incredible download speeds wherever they go, and it will just work.

Why do some manufacturers, such as Apple, only enable certain applications over wifi and is this the correct approach to take?

Heavy applications are terrible for 3G/ 4G networks, since they generate a lot of traffic, creating a poor user experience. By enabling certain applications as wifi only, these manufacturers are not only helping relieve 3G/ 4G traffic, but are also ensuring that the users on their devices have the best possible experience whilst running those apps. Additionally, certain limitations such as allowing VoIP applications only via wifi are imposed by carriers, and not by device manufacturers.

What impact on the market do you foresee the arrival of 802.11ac equipment having?

802.11ac is an increment over existing technologies. The advantage is that it gives users more bandwidth per access point. Obviously, this is very attractive, but AC only works over 5GHz, instead of 2.4 and 5GHz for 802.11n, so the propagation will have a shorter range. This makes it more challenging for public settings, but is ideal for home use, particularly for bandwidth-heavy tasks such as streaming video. Routers and access points are only just starting to appear in the market, so it will be a while before there is critical mass. Fon will support 802.11ac once it sees there are sufficient numbers of compatible devices out there.

What are the biggest challenges you expect to face in the next couple of years?

At Fon, our biggest challenge is handling our phenomenal network growth, as we are expecting up to 50 million hotspots in the next five to six years. Obviously, we want to continue offering a great service to our members, so we will have to manage this growth carefully. One of the main challenges with the wifi industry in general, is ensuring that wifi will offer a great user experience with all kinds of devices.

Fon is an innovative solution. Do you think there is enough innovation in the broadband industry and if so, where do you see it?

There is a lot of innovation happening in the way people use broadband access. In fact, this is one of the industries with the most changes. Of course, these changes bring challenges and opportunities. Currently, both fixed and mobile providers are facing many challenges when it comes to protecting their current business models. Whilst this is daunting, it creates many opportunities for providers. This is a growing industry with increasing relevance for consumers. Innovation lies in improving access speeds, combining different access technologies and then of course in improving new services and applications for the consumers.

Why are you looking forward to speaking at the Broadband World Forum?

Six years ago when we first started, some people expected Fon to fail, especially operators, who doomed wifi. Now, the situation is completely different. Everyone realizes that wifi is an integral part of our lives, and has to be an important part of hybrid networks. For us, this is the chance to present Fon and to learn from others where they see the industry going. We hope to meet lots of interesting people and to have many interesting discussions.


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