BT invests in WiFi community start-up, FON

fon.jpgUK’s phone giant BT has invested in the WiFi router start-up FON, in an effort to cover the UK with what they proclaim will be the “world’s largest WiFi community.”

BT has more than 3 million broadband customers. Under the deal, BT will “invite” customers to join FON’s service, but its it not clear why they’d have the incentive to do so. WiFi ventures recently have proven disappointing. There’s lots of competition from 3D broadband providers for mobile users, and other technologies like WiMax are on their way.

It’s also not clear why the deal took so long to get underway. We reported this was going to happen back in February.

Under FON’s standard model, if customers buy a €34.44 ($48.70) FON WiFi router, and share their WiFi connection with others, they in turn get access to other members’ WiFi network anywhere in the world for free. The BT announcement is being covered widely, but surprisingly the coverage hasn’t asked the big question: Is BT giving away the routers to its customers, or it is it making them pay? We’ve got a query out to the company and will update when we hear. The announcement said the two companies are sharing revenue from the deal, so presumably customers will be forced to pay. [Update: The company says the routers will be given to BT customers for free.  Now the question becomes where is there revenue being made, and how will FON benefit from this? We’re asking…stay tuned]

Fon now claims 500,000 members, however its uncertain how many of those are paying, and how many of them have their own routers as part of the network. FON says it only has 190,000 hotspots, suggesting that not each member has their own hotspot.

BT joins other investors, including Google and Internet phone company Skype, on the board of FON. The terms of the transaction weren’t disclosed. Other investors in FON are Index and Sequoia Capital.

BT competes against companies like Vodafone and T-Mobile, which offer mobile broadband coverage. BT has partnered with chains like McDonald’s and airport company BAA to offer wireless access. It has also experimented with muni WiFi in 12 cities, but like elsewhere, including in the U.S., the muni efforts haven’t done that well. Customers are never certain when and where WiFi works because coverage is spotty.

FON has signed similar deals France’s Neuf Cegetel and the U.S.’ Time Warner.