TWC lets users create WiFi hotspots

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SEATTLE -- In a big win for a little WiFi startup called Fon, Time Warner Cable will let its home broadband customers turn their connections into public wireless hotspots, a practice shunned by most U.S. Internet service providers.

For Fon, which has forged similar agreements with ISPs across Europe, the deal will boost its credibility with U.S. consumers. For TWC, which has 6.6 million broadband subscribers, the move could help protect the company from an exodus as free or cheap municipal wireless becomes more readily available.

Fon was founded in Spain in 1995 on the premise that people shouldn't have to pay twice -- once at home, then again in a coffee shop -- for Internet access. At first, the company offered software that let members, called Foneros, turn WiFi routers into shared access points, but it took hours to get up and running.

In the fall, Fon, which counts Google Inc. and eBay Inc.'s Skype among its investors, started selling and sometimes giving away its own branded wireless router, called La Fonera. Since then, it has distributed about 370,000 of them worldwide.

La Fonera splits a WiFi connection in two: an encrypted channel for the Fonero and a public one for neighbors or passers-by. Foneros can decide how much of their bandwidth to share with the public and can log on to any Fon router without charge. "Aliens," as Fon calls nonmembers, can register on a Web page and pay a modest $2 or $3 for 24 hours of access.

In the U.S., where it costs $10 for a day pass to use a T-Mobile HotSpot at a Starbucks, Fon's economics seem particularly appealing.

Joanna Rees, chief executive of Fon USA, said such rates at coffee shops, airports and hotels might work for a business person with an expense account but are too high for people who just want to quickly check e-mail, make a call on a WiFi phone or play on a wireless video game device.

"They're extorting people," Rees said.

Starbucks Corp. and T-Mobile USA Inc. representatives responded that they provide a premium service, and that customers see value in paying for speed, security and reliability.

Fon has about 60,000 Foneros in the U.S. In February, the company launched "Fonbucks," a one-month router giveaway aimed at people who live above or next-door to a Starbucks. It was an amusing way to get more La Foneras into high-density areas, and it worked to the tune of 6,800 free routers.

But until now, ISPs in the U.S. have resisted the Fon model. Most big companies' end-user license agreements prohibit subscribers from sharing their connection outside the home or business. Verizon Communications Inc., for example, can terminate contracts if it finds an ad-hoc hotspot.

Those policies are antiquated and don't mesh with the reality of untold thousands of people using their neighbors' unsecured WiFi connections, Rees argues.

"It's a dirty secret how much leeching" goes on, Rees said. She said ISPs should embrace Fon because the routers, which require that "aliens" enter a valid credit card number before getting online, put a sharp stop to the leeching. And getting free access to the worldwide network of La Fonera routers encourages people to get or keep a broadband connection at home.

In the Time Warner deal expected to be announced Monday, Fon and the cable company will split what "aliens" pay to use the hotspots. Rees said the two companies are still working out details on how the partnership will be marketed. Time Warner Cable spokeswoman Maureen Huff confirmed the broad outlines of the deal but declined to discuss any details.

Time Warner may be looking ahead to the not-so-distant future when some of the 300 or so municipal wireless projects -- featuring free or at least inexpensive broadband -- being considered today become reality.

Godfrey Chua of the research group IDC said the threat is most serious to ISPs that still offer dial-up access, because budget-minded customers who don't need a fast home connection might be swayed by the access-everywhere advantage of municipal WiFi.

Still, that doesn't mean ISPs should start knocking down Fon's door, Chua said. After all, it's unclear whether a revenue-sharing agreement with Fon would offset the added costs of supporting all the additional traffic that WiFi users would bring to a broadband network.

So while Fon's value grows as the number of Foneros increases, so does the burden on the ISPs. Chua compares Fon's situation to two popular Internet phone providers, Skype and Vonage Holdings Corp.

"Both of those folks so far have been allowed to do what they're doing because the traffic loads created haven't been so onerous for the service providers," Chua said. "As soon as that becomes a pain point for the ISPs, they're going to clamp down on it."
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