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Join The FON Club, Be A Hotspot


By Spencer E. Ante Done any FONing Lately? Most Americans have never heard of the Madrid-based tech startup called FON, but if founder Martin Varsavsky has his way, the name will enter the lexicon the way "Googled" and "Skyped" have. Thanks to a new joint venture with BT Group, (BT) announced on Oct. 4, he may have a shot.

Less than two years since its launch, FON has quietly built the world's largest Wi-Fi network--without the slow, expensive process of having to string up hotspots in light poles and coffee shops. Instead, the company is trying to capitalize on the community-minded ethos of the Web. To become a FON member, people either purchaseone of the company's $40 routers or install its software in their existing cable modems. The technology turns every "FONero" household into a Wi-Fi broadcasting station.

What FON members get in return is the opportunity to piggyback on other members' broadband connections for free. Users can even designate how much of their own Internet pipe they want to allocate to other FONeros. So far the company has deployed 280,000 FON routers around the world. That's an impressive number considering there are only about 200,000 traditional wireless hotspots scattered across the globe. "I really like the idea of creating a common Wi-Fi network that anyone could have access to," says Michael S. Dell, founder and CEO of Dell Inc. (DELL), which recently began selling FON's routers on Dell.com.

The BT deal should help FON's network grow exponentially. Under the terms of the agreement, the British phone carrier will install FON's technology in the modems of 1.7 million of its customers. In recent months, FON also has inked smaller deals to pre-install its software with cable operator Time Warner (TWX) in the U.S. and phone carrier Neuf Cegetel in France.

Thanks to these deals, FON could become one of the few companies to cash in on the promise of Wi-Fi service. For years the technology has been promoted as the next big thing in telecommunications. But so far Wi-Fi has generated more bluster than business. Big tech players such as Intel Corp. (INTC) and IBM (IBM), for instance, have pulled the plug on some of their ambitious initiatives. "We view this as a transformational event," says Danny Rimer, a partner at European venture capital firm Index Ventures, which has invested in FON. "It should translate into significant revenue growth over time."

It wouldn't be the first time Varsavsky has struck gold by shaking up telecom. A 47-year-old Argentine entrepreneur who fled the death squads of his native country in 1977, Varsavsky has nurtured and then sold a collection of tech companies over the past decade, including Spain's first independent telecom operator, Jazztel.

To add FON to his string of hits, Varsavsky first must zap some static surrounding its strategy. Despite its large network, FON's hotspots are not always located in the most convenient places. "There are some big holes in places," says Glenn Fleishman, editor of an industry blog called Wifinetnews.com.

And while the global ranks of FONeros may be growing at a nice clip, it's not clear the company can make money off them. Right now, FON hopes to turn a profit by delivering video ads that appear on the log-in screen and by collecting fees from phone companies that charge non-FON members a few bucks to log on to their networks via FON routers.

Varsavsky predicts profitability will come when FON hits 1 million hotspots. And thanks to the recent deals the company has struck with carriers like BT, that goal seems closer than ever. "It probably would have taken us five years to place 1.7 million boxes," says Varsavsky. "It's a dream come true for me."

Ante is Computer Editor for BusinessWeek


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