Still A Little Mystified By FON

Picture 1.pngFON, the upstart community-based Wi-Fi network, announced a deal with BT last week, in which the carrier said it would equip 1.7 million of its customers’ home DSL gateways with FON software, turning them into FON access points. The basic premise of FON’s network is that people who deploy its access points or software can choose to allow other FON users (or FONeros) to connect to their AP for free, and they in turn can connect to the others in the network for free. Users who aren’t a part of the network have to pay to connect.

FON’s previously announced deals with cable operator Time Warner in the US and French carrier Neuf Cegetel, so the BT deal will clearly help it continue to scale. FON founder Martin Varasavsky says that the company will turn a profit when it has 1 million APs deployed; it’s got 280,000 so far. But as the company continues to burn through investment, will the model ever pan out?

The Wi-Fi network business is pretty hard to crack: witness the number of hotspot aggregators left standing today compared to a few years ago. The Wi-Fi infrastructure business continues to hum along, while some aggregators’ business models — like Wayport — have shifted the risk and the economics around a bit to make things more viable. Part of FON’s take on the situation was that it wouldn’t have to pay for deployment or backhaul, since individual users supply their own broadband connection and install the APs themselves.

That’s great, but the issue here is one of coverage: will FON ever be able to build a useful network? It’s great that BT users will have access to, potentially, 1.7 million or more hotspots. But the vast majority of those will be in homes and residential areas, offering little value to the rest of the network. The only way this makes some sense is when you think about it in terms of BT’s Fusion fixed-mobile convergence mobile phone product. Since BT doesn’t own a mobile network and has to buy airtime from another network operator, it’s got an incentive to pass as many calls as possible off to Wi-Fi hotspots; in this context, FON’s footprint makes more sense. Chances are that somebody’s not going to stop in front of a random house on a random street looking for Wi-Fi access for their laptop, but such locations could be valuable for voice phone coverage.

I have a hard time seeing FON being very successful as a provider of Wi-Fi access for computer users, as it’s unlikely that it will be able to secure enough high-value locations. However, it could prove successful as an infrastructure provider for FMC services if it can build out a wide footprint, at least in the near term. There’s another problem here, though: Wi-Fi’s not an ideal technology for this kind of service, and its medium- to long-term future as a shoehorned wide-area networking technology is under ever-increasing threat from mobile broadband technologies.

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