VentureBeat

Fon, a Spanish startup hoping to build “the world’s largest wireless community”, has raised $9.5 million in a third round of funding, according to TechCrunch.

Coral Capital Management led the round, with participation from British Telecom, Google, Allen & Co., founder Martin Varsavsky’s Jazzya and Joi Ito’s Digital Garage. Varsavsky says he’ll use the new funding to launch Fon in Russia, and to release a new version of the company’s Fonera router.

We covered the company last October, when British Telecom joined Google as a Fon investor. It’s a cool idea: After installing a Fon wireless router, you can open up your network to other Fon users in exchange for free access to other routers when you’re traveling, or you can charge for access and receive 50 percent of the proceeds. But it’s still not clear whether the company is making much money, since it appears to be giving the routers away for free, and the most interesting part of Fon’s model also involves free wireless. (A startup called Meraki is also trying to create a free wireless network, in this case one that envelops San Francisco.)

It’s worth noting that British Telecom and Google may not see Fon as a moneymaker, but as a way to promote their own offerings. Sequoia Capital, a previous Fon investor that’s usually more interested in profit, didn’t participate in the current round.

UK’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.

(Updated, corrected investor information)

FON, the Madrid, Spain company that offers routers to people that FON members can share if they want, has raised a second round of funding.

It has received $13M from existing investors Index Ventures and Google, and from four undisclosed non-US investors (the company says names will be announced at a later date). Its total funding is now $35 million, and comes a time when a raft of competitors have entered the market, such as Whisher, a Benchmark Capital-backed company, which targets FON directly, and other players that overlap with FON, such as Meraki.

FON says it has a total of 320,000 members and more than 120,000 WiFi hot spots that those members can access. In the US, more than 60,000 hot spots have gone up over the past two months, serving 45,000 members. Joanna Rees is chief executive of FON USA (Update: The company says Joanna is an early investor in FON too).

Here’s a post by Martin Varsavsky, the CEO and founder, announcing the funding news.

BT, the giant UK carrier, is on the verge of wrapping up a deal with the Spanish start-up FON, which will let BT customers make cheap calls on FON WiFi hotspots.

Reports about the talks surfaced here (and this story has good details), and a source close to FON tells VentureBeat the deal is near complete.

It is significant, because FON’s routers will give BT Fusion mobile customers a way to share access to their home WiFi networks. Then, in multiple areas of the UK, these customers can make near-free Internet calls, by using those networks. This may mean less revenue as calls leave BT’s network. But perhaps BT feels it doesn’t have any choice, as it continues to get undercut by cheaper competitors.

Under the deal, all new ADSL accounts will be FON access points, we’re told.

FON is backed by Google, Skype, Index Ventures and Sequoia Capital.

Honestly, we never got FON, the company that sells a WiFi router so that you can share your WiFi with others.

FON claims 50,000 nodes, and that it is the “largest WiFi network in the world,” so it appears to be having some traction.

Whisher is a new Spanish start-up flogging a similar model — but its offering may be more palatable than FON’s. Whisher has just raised an undisclosed amount of funding from Benchmark Europe and SwissCom. This news was supposed to be “embargoed” until Tuesday morning’s Demo conference opened, which is the rule for companies like Whisher presenting there. However, the news has already been broken by the habitual embargo-breaker, Erick Schonfeld (got to love his chutzpah) and elsewhere (a good summary of all the latest WiFi offerings, btw), so we’re weighing in too.

Stepping back, the FON idea is that you share your WiFi with others, and they’ll share with you • a great help when you’re on the road and need a connection for free.

But practically speaking, this is a tough sell. You’ve got to buy the router first, and in today’s rushed world, buying another router in hopes that you might find someone else to share with down the line — well, it doesn’t seem to be high on our priority list. Increasingly, there are muni WiFi sites, and if you’re desperate, there are free WiFi cafes; we know at least one in each major town we visit here in Silicon alley. And there are EVDO cards, too.

So along comes Whisher, which basically does the same thing as FON, but without requiring you to buy the $29.95 hardware box. There’s some emnity here, too, because Whisher is run by Ferran Moreno, who left FON, apparently over a split with FON CEO Martin Varsavsky. You do download a free software. This lets you tap into any free WiFi hotspot, or into the private WiFi network of participating members. Once there, Whisher provides other social networking features • for example IM, file-sharing and information about the locale you’re visiting and the users there.

So how does it plan to make money? Whisher, unlike Fon, wants to rely on advertising. By getting users to chat and interact at a local WiFi connection, Whisher hopes to let advertisers target the users. If you’re near a MacDonalds, for example, the fast-food chain can offer you a discount to lure you over.

The investment from Benchmark Capital is led by Klaus Hommels, who was an early investor in Skype, and who says he sees the same viral possibilities in Whisher.

(Competitor FON, notably, is funded by Skype, along with Google and Sequoia Capital)

Ferran Moreno, founder and CEO, tells VentureBeat he’s most proud of the company’s embedded browser • which lets Whisher control the experience, updating it as needed.

The IM service is integrated with Jabber, which allows you IM with anyone else on the network, regardless of their particular IM service.

The file-sharing is noteworthy too. You leave the files on the WiFi network, so that anyone passing by can have access to them.

Right now, the Whisher’s Windows version is working better than its Mac and Linux versions, Moreno said. VentureBeat was unable to login to test the product.