Skype and Google are putting $21.7M into Madrid-based start-up Fon Technologies.

Fon is creating a community amongst private owners of WLAN wireless routers that enables any of them to roam on to any other Fon "hot-spot" for free. The density of private WLANs in urban areas and the very fast penetration of Skype through viral marketing, means this could rapidly become very big. Add the potential for to peer-to-peer meshing (i.e. a WLAN router linking to an adjacent WLAN router through the wireless channels rather than via DSL and the fixed network), and this could be very disruptive to the incumbent fixed and 3G mobile-operator's view of the future.

Skype and Google are putting $21.7M into start-up Fon Technologies. (Click here for the story). 

Madrid-based Fon is beta-testing some software that owners of private WLAN access points can install that:

1) allows a member of the public within range to use the WLAN access point while maintaining the security of both the access-point owner's network and the accessing device.

2) in exchange when the access point owner is away from their own access point they can access the access point of anyone else who is a registered Fon member.

3) the Fon software also allows nearby access points to access each other through the wireless channels. This is a higher capacity connection (104 Mb/s with 802.11g) than the normal DSL connection linking the acccess point to the fixed network. It then opens up the evenutal possibility in an urban area with many Fon users for IP traffic to "hop" from the originating access point through a series of other Fon-enabled WLAN access points direct to the destination user without passing through the fixed network. Since 1995 we (and others) have written before about the possible "meshed peer-to-peer" network (See []) as a highly disruptive technology - Fon shows this potential is now real and can longer be ignored.

Currently this is only in Beta test, and only available for one type of WLAN access point. But then in July 2004 Skype was only in Beta test, and 20 months later it has nearly 300M downloads, 5M users on-line at any one time and was sold to e-Bay for several billion dollars!

Also "piggy-backing" on someone else's WLAN and sharing a DSL connection are illegal in many countries, although most incumbent fixed operators have so far not attempted to enforce the rules, and doing so would be a massive challenge.

Given the backing of both Skype and Google, this Fon announcent deserves serious attention.

Our first reaction is it might potentially have sudden impact on teleco share vlaues, so Telcos might want to be prepared, just in case it does. In any case we do see this as a key story for the medium term that all incumbent telcos (fixed, mobile and CATV) should be looking at carefully.
 
It is always tempting to size on one headline to show that one particular future is happening - in some scenario planning exercises we have had participants who have been put in four groups each charged with writing a convincing story about their allocated future coming in the next day with some newspaper stories to say their particular future is already happening - sometimes two groups use the same story to support their own very different stories!
 
So we are very mindful of this when thinking about the story, because we should avoid believing in a specific future, otherwise that becomes our "official future" and we lose the mind-stretching that we gain by being forced into thinking about alternative futures.
 
So we see the Fon story not as a proof that one particular future is happening, but rather a validation that that future is feasible, scary to incumbents and could happen fast, and so emphasises the importance of scenario thinking in drawing up robust strategies.
 
This story follows the story line of our "Information Society" future rather more exactly than one expects in scenario work, and it is happening years before we thought:
 
It brings together four elements that we see as a fast route to the information society
 
1) by involving Skype it gives access to the elements we pointed out in our thought paper (Skype-VoIP Win-Win December 2004):
a) viral marketing
b) easy to adopt, easy to use
c) encourages a WLAN hot-spot culture in retail establishments and residential
d) encourages a chat culture
e) a baby-step by baby-step fast-track from voice-only to voice plus instant message to adding files to MMS to video-calls to the information society
f) provides another big incentive to upgrade to broadband
g) sets higher standards for quality of voice calls, for speed of innovation, for speed of penetration
h) provides access to a massive customer base (the 280M downloads of Skype) 
 
2)  by involving Fon Technologies it gives a WLAN footprint that can be vey dense and multinational

a) it activates and provides an incentive for any private WLAN access-point owner to participate. There are millions of these in every European country and in the USA.

Already whereever you are in an urban area you can detect several WLAN base stations, which demonstrates the potential universality of the Fon approach. However some of these are security protected to prevent the public accessing them, and many potential users will avoid trying to log on to the unprotected ones because their security is in doubt.
b) by providing both an incentive for a private access point to open up to other users (both you can then surf for free over other members networks wherever you are, and you belong to this cool new community), and a mechanism that safeguards the security of both access-provider and the accessing device, so the defusing anxiety of opening up to the public
c) gains access to a critical mass test-market - the massive Spanish-speaking countries (Fon is active in Spain and in the USA, and already has agents preparing launch in many other countries)
c) potentially sets up a community, like KaZaA did, to create pressure to change rules (this time to allow public access to private WLAN hotspots)
d) potentially opens up the peer-to-peer "meshed network" scenario (where the fixed access points can communicate directly with each other as can mobile WLAN-equipped devices, hence opening up peer-to-peer-peer hopping, without needing a DSL backhaul from the fixed WLAN access point). This would use existing WLAN standards, so can be done today, hence totally bypassing the fixed network (so making point c) irrelevant).

This alone has the potential for a massive disruptive effect on current business models. Just the knowledge this could happen might even impact stock values immediately: if investors recognise immediately the possible impact of today's news. This risk is increased by the wide following of any news concerning Skype and Google.
 
The disruptive impact on business models are:
 
- displacement of voice traffic from fixed and more importantly from mobile operators to the VoIP/WLAN hot-spots
- possible peer-to-peer links reducing the amount of "back-haul" traffic currently handled by the DSL connecting WLAN access points to the fixed network and so to the billion-plus other telecom users worldwide.
 
However incumbents can profit from such a uplift by:
 
- they have millions of junction boxes that offer both power and backhaul, and so could also be sued to offer blanket WLAN capability, so preempting this initiative
- rebalancing tariffs to raise local access (including DSL) to cover costs (rather than being subsidised by very high rate LLD and IDD per-minute calls), and so all calls bundled for free. This would also eliminate much of the arbitrage-based competition, and so return some business logic to the telecom industry. This will require a very firm, consistent and well argued case to the regulator, to national governments and to the EU, as the current illogical access-charge regime is deeply ingrained in their perceptions, even though it is as far from cost-based as it is possible to get!
- seeing an uplift in total traffic. The experience with Skype shows the potential for increased voice chatting, and so this might lead to customers gradually being prepared to pay slightly more for a much higher length of time per day talking
- the baby-step-by-baby-step into the Information Society experience of Skype might be a more effective boost to telcos plans for the broadband future than they have managed so far to achieve
 
In addition to these possibilities there is also the interesting potential through Google's involvement:
 
- Google on-going investment in telecom infrastructure, especially involvement in city-wide WLAN initiatives such as in San Francisco
- Google adding "push-to-talk" facilities to its search engine sponsored links (as e-Bay is expected to do through its acquisition of  Skype), and to its Gmail service
- Google extending its text-content searching and sponsored links to other content such as video and voice and to bringing this together with the natural networking of people and their relational links that telecoms brings
 
All in all therefore an interesting piece of news that stimulates a lot of thinking! Please let us know your additional insights, thoughts and comments.