Google, Skype Back WiFi Startup

Google (Nasdaq: GOOG) and eBay Inc. (Nasdaq: EBAY) division Skype have invested in the Spanish start-up company FON Wireless Ltd. , whose software turns home wireless routers into WiFi hotspots for broadband sharing among a worldwide community of "foneros."

Google and Skype joined VCs Index Ventures and Sequoia Capital in a $21.7 million round led by Index, according to a statement released Sunday. The individual funding contributions of the investors were not disclosed. (See FON Raises $21.7M.)

The startup was created just three months ago by Internet entrepreneur Martin Varvarsy, who floated the idea in a blog, the company says. Varvarsy came to the Valley in November and December to enlist backers, and his pitch apparently rang true with some impressive figures.

Cisco Systems Inc. (Nasdaq: CSCO) didn't invest, but its routing group VP Mike Volpi took a spot on FON's board of directors along with Skype founders Niklas Zennstrom and Janus Friis and Danny Rimer of Index Ventures.

FON’s goal is to create a global network of shared WiFi connections. To join the network, a broadband customer signs up on the FON Website, then downloads some software onto his wireless router that turns the router into a wireless hotspot. He is now a member of the FON community -- a “fonero.” He then places his router near a window so that other foneros roaming around can pick up the signal.

The WiFi sharers can choose either to charge and be charged for shared WiFi usage with other members, or to participate on a share-and-share-alike (free) basis. They can also stipulate how much total bandwidth is shared, and set security levels to ensure that local PC assets can't be touched from outside.

Google and Skype have their own reasons for getting behind FON's "wireless broadband everywhere" concept. (See Google's Ad-Mad Network and LR Poll: Net 'Squatters' Should Pay.)

Skype is facing a barrier to mainstream use because its VOIP service is still very much tied to the PC, where the broadband connection is. Skype is WiFi-ready, and might become more popular if wireless broadband was more available. (See D-Link Makes Skype Adapter, Retail Skype Debuts at RadioShack, and Linksys Makes Skype Phone.)

“There is no more important shared goal that we have as an industry than helping to make broadband Internet access widespread and low cost,” wrote Skype founder Janus Friis in the company’s blog Sunday. “So as part of Skype’s role in making this happen ... today we are announcing that we are making a small investment in a new and exciting company called FON.”

Skype announced at the Consumer Electronics Show a partnership with home router maker Netgear Inc. (Nasdaq: NTGR) that allows Skype users to place VOIP calls using a WiFi handset.

Google has installed a WiFi network in Mountain View, California, and has entered a proposal to build a larger one in San Francisco. (See SF Muni WiFi in Low Gear.) Analysts say a key logistical problem in such projects is the placement of enough wireless access points to achieve seamless coverage. By enlisting wireless routers in the home, FON may provide part of the answer. (See Google's Own Private Internet.)

Google representatives were not immediately available for comment.

FON plans to make its profit by charging a fee from members called “Aliens” who use other members' wireless hotspots but don't share their own. FON says it will share 50 percent of those usage fees with ISPs, who might naturally feel a little left out.

Broadband service providers such as cable MSOs, telephone companies, and independent ISPs may lose revenue from new broadband service sales if broadband sharing communities like FON prove successful. Some broadband providers already expressly prohibit users from sharing the service outside the home.

FON says it hopes to create a large community of users worldwide -– a million shared hotspots by 2010 -- so that wherever its members roam, wireless Internet access is available. For sparsely populated areas, FON says it plans to install hotspots itself. FON says it has picked up 3,000 members since beginning its beta last November.

“As Foneros continue to join, and there are more and more Fonero hotspots, the dream of a unified global broadband wireless signal becomes a reality,” wrote FON's Varvarsy in his blog Sunday. “The FON movement, as we call it, can achieve what 3G or EVDO has not -- a truly broadband wireless Internet everywhere.” (See Resistance Is Futile.)

— Mark Sullivan, Reporter, Light Reading