Background briefing on FON
1/Feb 2006
Some days 
ago I posted that I was writing a report for one of my courses at the University of Sussex. I chose to research on FON. The aim of this paper is to show a factual description of how this company is using technology in its business model, nothing more, nothing less :-)
Enjoy
Introduction
FON is a recently created start-up company in Spain, founded by Martin Varsavsky, an Argentine entrepreneur, founder of many companies in the last 20 years, five of which have become very successful.
He founded his first company in 1984 while he was studying a BA in New York. He also holds a MA in International Affairs and a MA in Business Administration from Columbia University. His successful companies include:
Urban Capital A real state company based in New York City by which he became a successful entrepreneur and won part of his fortune. Raised about 12 million dollars.
Medicorp Sciences A biotechnology company Martin Varsavsky started with Cesar Milstein, winner of the Nobel Prize in Medicine and Doctor Claudio Cuello. Although it was not a great success, it was not a failure either. They were among the first to create AIDS and Cancer products of various kinds.
Viatel Founded in 1991, Viatel is a now a specialist provider of high quality communication services to businesses and carriers.
The original idea behind Viatel was to use the cheapest-at-that-time (70%) telephone rates in the USA to make calls to and from other countries using a call-back method. This method would revolutionize the way phone calls were made around the world.
After this, Viatel created the first pan European fibre optic network.
Jazztel Jazztel, a telephone company that became the largest CLEC (competitive local exchange carrier, a telephone company that competes with an incumbent local exchange carrier) and is now the second largest publicly traded telecom in Spain, which is worth 400 million euros in the Madrid Stock Exchange.
Ya.com Ya.com is the second largest Internet content company in Spain. It was founded in 1999 with an initial investment of 38 million dollars and was sold to T-Online, a subsidiary of Deutsche Telecom in 2000 for 550 million euros.
FON is a company that is trying to make up a Wifi world in which every single user who has access to broadband would share their broadband connection to allow any other person to use it and get connected to the Internet and, also, make profit out of it.
How It Works
What FON is trying to do is what Skype is doing, but in terms of Wifi, creating a shared network. Basically, it wants every user to convert their Wifi router into a FON router, by which it would share a portion of its bandwidth to create a FON network, what would be called a Hot Spot.
A hot spot is a place in which access to the Internet is offered under a pay-as-you-go rate through a wireless connection. This is usually found in cafés, airports, stations, etc.
This is supposed to be done by upgrading the firmware’s software of the wifi router to a version created specially by FON. By doing this, the router would become an internet Hot Spot allowing anyone near-by to get connected to the internet in different ways. The router would share part of its bandwidth to outside users depending on how the owner of the hot spot configures the router:
Linus: The user sets up their router so it becomes a hot spot. The user receives in return, permission to use any FON enabled hot spot to get connected to the internet for free.
Bill: The user sets up their router so it becomes a hot spot. What the user receives in return is a part (50%) of the profit generated by the use of a hot spot. Hot spots can then be accessed by Linus users for free and other users who would pay for it.
These other users are what FON call aliens. People who need to access the internet at some point if they are in the range of one of these FON hot spots. These payments can be done thanks to the software installed in FON enabled routers.
Right now FON does not have this payment method ready, but they promise it would be finished by March 2006.
What FON is using
FON is about technology. It surely could not exist without technology. It relies on some different technologies (i.e. broadband internet connection, Wifi, linux, etc.) that are commodities right now. Technologies we would not have thought of being inexpensive some years ago.
First of all, broadband is the preferred Internet connection. Price reductions has allowed mainstream adoption and Internet connection speeds of 512Kbps, 1Mbps or even more are common these days at a reasonable price. These speeds are more than enough for the average Internet user, which browses the Internet, do some shopping, read emails, etc., unless high demanding tasks are required. Dial-up connections seem like something from the past.
Wi-Fi (Wireless Fidelity) is the buzzword used to group almost all wireless technologies used these days. Wifi has been a revolution. It allows the so-called ubiquitous computing allowing anyone, any gadget, to be connected to the net. It has also made network deployment much more inexpensive and easier due to the lack of cables, which is a couple of the reasons why this technology has been widely adopted by consumers as well as companies. Although the wireless technology lays some concerns about security that we are not going to discuss in this document, it is a fact that it has helped widespread Internet connections. There are many cases of towns offering free wireless access to the Internet these days to any inhabitant that wishes to. There is even some extensive research being done on how wireless can be deployed safely and effectively in planes, to allow passengers to remain connected in long haul flights.
The operating system GNU/Linux has also been revolutionary, introducing free and open source movement in our lives. There are many technical reasons as well as philosophical reasons why the free and open source movement is improving the computing world that we are not going to see here. The main point is that FON leverages the use of free and open source to pursue its objective: creating a global wifi network.
The idea behind FON is that they want to control, up to a degree, the software that governs wifi routers. A wifi router is basically a device that provides a wireless signal and allows other devices to connect to it. It also routes all packets coming from all these devices appropriately, be it the Internet or the local network. Depending on the vendor, there are a variety of features available to the end user, such as extra security, statistics or a user-friendly configuration menu, which lets the owner or administrator configure it to suit their needs. Usually, the software these devices operate under (their operating system) is fixed in a firmware memory at factory and the user is not given any possibility to modify it. But Linksys, a company owned by Cisco, produced a wi-fi router whose operating system was based on GNU/Linux. In order to comply with the General Public License (GPL) under which Linux was released, Linksys published all the source files used to control the device. This not only allowed anyone to be able to understand how it all worked, but it also allowed third parties to modify the sources and come up with a different version of the firmware, even improving it. Linksys has benefited from this as sales of these devices have risen quite significantly.
FON uses all of the aforementioned technologies to offer a customised version of the firmware of these devices, or even sell new devices with the firmware loaded, so users need only plug them into their network. By doing this they become FON Internet hot spots joining their network and benefiting in one-way or another.
Revenues would come, apparently, from potential users of these hot spots, probably in the long term, if enough hot spots are deployed and they seem attractive to users as to be willing to pay for it. Other methods would include advertising and the use of other auxiliary products. One of these is the WifiFon, a wifi enabled phone that would be able to join any wireless connection to the Internet and make cheap calls using VoIP, just like the way Skype is making its profit. So far this option is only advertised on FON´s website, but there are no rates published or options for buying this device.
As a new feature, FON now features a brother website based on the excellent Google maps website to create custom maps showing hot spots near you. This is another example of how FON is leveraging technology, in this case one provided by a third party, to gain some advantages over competitors, at this point non-existent.
Technology in this company
It is obvious that this company bases all its value on technology. The continuous reduction of broadband connections fosters widespread use of the Internet among citizens. Wireless is still the state of the art in innovations. It is still being developed as many new protocols, speeds and features are being created right now. The possibilities of these new devices and the way they could be used remain hard to imagine. The operating system GNU/Linux created by a, then, Finnish student in 1991, has also fostered a new way in which we can conceive business. Not only that, it now allows anyone of us with the appropriate technical skills to do custom modifications to the software running in commodity devices such as wifi routers, VCRs, etc. All these things were very difficult to imagine some years ago.
Others companies are well aware of this and are trying to take advantage of all these technologies as not to lose track. Google is one example of such companies. For example, they are trying to deploy a wifi network in San Francisco. In fact, there are even rumours spreading that Google is interested in investing in FON.
Nevertheless there are some concerns about FON and the way it becomes profitable. One major drawback is ISP and Phone Companies that have special policies that forbid their clients from reselling their bandwidth. There are also some other concerns regarding security. Wifi networks are not a good example of security for many technical reasons. It seems that relaying the control of consumers’ routers to a private company has raised some voices against this project.
Conclusion
Whether this company may be profitable or not is still unknown. There are many questions that remain unanswered and there are a variety of opinions on what this company is trying to do. Some argue that the world tends to make free wireless access while others see this as a challenging opportunity for a company to set up a new business model.