FON: Wi-Fi for Everyone

FON, the new service that creates essentially an ad hoc global Wi-Fi access network, presents a business plan that challenges traditional network access providers by using broadband access to support what amounts to Wi-Fi access for everyone.

How broadband access providers respond to this challenge – whether they put up roadblocks or join the party – could be the next huge issue in multimedia communication and the net neutrality issue.

A group of investors that have injected $21.7 million into the fledgling company includes Google Inc., Index Ventures, Sequoia Capital LLC and Skype Technologies S.A. And the recent additions to the board of directors are a roster of players who have already been pushing the envelope of Internet communication: Danny Rimer, general partner at Index Ventures (which also funded Skype); Mike Volpi, senior vice president and general manager of the routing technology group at Cisco Systems Inc.; and Niklas Zennström, CEO, and Janus Friis, co-founder at Skype.

FON was founded just three months ago by Martin Varsavsky. The company’s stated objective is “to build a global Wi-Fi network bottom up, with one million hotspots by 2010.” To do this, FON users connect to the Internet via Wi-Fi hotspots provided by other members of FON.

The company says the network will enable members “to connect to the Internet safely and securely all around the globe.” The interest for Skype and Google is obvious: more ways to connect to their services and the potential to develop services specifically for FON members.

FON has three levels of membership. “Linus” members share their home Wi-Fi hotspot with the FON network and can use any FON hotspot for free. “Bill” members share their Wi-Fi hotspots with Alien members for a fee. “Alien” members pay to use the FON network on an as-needed basis. Bills cannot roam the FON network for free. Fifty-percent of revenue generated from Aliens will be shared with Bills. Alien memberships are currently available on a free-trial basis. The service uses download-and-install software in the mode of Skype.

Varsavsky, FON CEO and co-founder (with CFO ) says, "Aliens are at the heart of our business model." Anyone providing service for a small fee, including ISPs, can share in the income from the Alien users. Glocalnet AB, a large ISP in Sweden, already has joined the service.

Whose Network Is It Anyway?

The “Wi-Fi for everyone” approach has immediate drawbacks, particularly for those providing access using their cable modem or DSL connections in the United States. Many U.S. cable companies and some DSL service agreements prohibit “unauthorized reuse” of broadband services, such as sharing a connection with neighbors. Cable companies have been particularly concerned with this issue.

The scheme also flies in the face of the “walled garden” of services advocated by some traditional access network providers, particularly ILECs, some of which have argued strongly that they should be able to charge third-party service providers on the Internet for access to their networks. This argument has been vigorously opposed by Internet organizations and consumer groups, which favor “net neutrality,” or a prohibition against Internet access providers having control over what services consumers access over those pipes.

However, the structure of the FON service offers some benefits that might eventually tip the scales in favor of allowing FON. One benefit is security. Consumer broadband with Wi-Fi within the home is often in reality an open network with little or no security. Anyone who has cruised a residential network with a Wi-Fi finder in hand knows the prevalence of open Wi-Fi in consumer deployments. This can be a danger for the consumer, but also a danger for the network operator. The FON software includes a level of access control that could be beneficial to service providers.

Second, there is the potential to garner actual revenue. At this point the amounts would be negligible, but could become significant if FON picks up steam. In any case, they could supplement revenue now charged just for the broadband access.

Third, service providers could develop service tiers and features that, for a fee, augment FON, such as announcing the FON member’s network, providing extra bandwidth or enhancing FON security.

Last, FON provides access infrastructure that the service provider does not have to deploy. In fact, service providers might launch their own FONs, with the membership comprising their own broadband access customers who would share Wi-Fi access for a fee that would be gathered and parsed out by the broadband service provider.

Such business models are very foreign to the way traditional telephony does business today, with their tightly controlled networks and tariffed fees. But such a service would be outside existing regulation and could be developed as they see fit, as well as providing a paying platform for VoIP access.

At this point FON is an interesting blip on the radar, much like Skype in its early days, but the potential for such a service could be quite significant.

Cisco Systems Inc.   www.cisco.com
FON   www.fon.com
Index Ventures   www.indexventures.com
Skype Technologies S.A.   www.skype.com
Sequoia Capital LLC   www.sequoiacapital.com

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