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Google, eBay Invest in Spanish Wi-Fi Startup

Google Inc. and eBay Inc.'s Skype are investing in a startup that plans to help hotspot owners charge for Wi-Fi access, a plan that could face significant opposition from Internet service providers.

The Internet heavyweights were joined by venture capital firms Index Ventures and Sequoia Capital in making a $22 million investment in FON, the Spanish startup. In its announcement Sunday, FON did not say how much each investor was contributing.

FON's idea, floated just three months ago in a Web posting by founder Martin Varsavsky, is to sign up people who have Wi-Fi hotspots in one of two ways.

"Linus" members, named after Linus Torvalds, who created the freely distributed Linux software, will share their hotspot with other Linus members for free.

"Bill" members, named after Microsoft Corp. founder Bill Gates, will charge for access to their hotspot.

FON will get some of that revenue, and share it with Internet service providers, or ISPs.

The network has gained 3,000 Linus members since going live in November. There is no software yet for Bill members, but Varsavsky expects it to be ready within four months.

Linus software is so far only available for Wi-Fi routers from Linksys, a division of Cisco Systems Inc.

FON faces a hurdle in that most ISPs prohibit subscribers from sharing Internet access with people outside their household. Many broadband subscribers share their access now for free, though, and it's hard for Internet service providers to stop them.

Traffic from a FON-connected hotspot would be easy for an ISP to identify, said Glen Fleishman, editor of the Wi-Fi Networking News site, because users have to authenticate themselves at a FON server.

Varsavsky wants to partner with ISPs to get them to allow their subscribers to set up FON hotspots. It has signed up a Swedish ISP, Glocalnet, and is in discussions with U.S. companies.

To win over the ISPs, Varsavsky points out that Linus members need Internet service to be Linus members.

"So in fact, FON is an incentive to become a customer of an ISP," he said.

Mark Harrad, a spokesman at Time Warner Cable, said the company was not aware of FON's plans. Its terms of service prohibit its 4.8 million residential broadband subscribers from sharing their connection outside the household.

Representatives at Google did not return messages seeking comment on the search engine's investment in FON.

Skype's Internet telephone service works over wireless connections, and a cell-phone-like device is in the works to take advantage of that fact.

"FON has a great idea to help people share Wi-Fi with one another to build a global unified broadband network, and were happy to lend support," Skype Chief Executive Niklas Zennstrom said in a statement.

FON's idea is not entirely novel — in fact, several companies and associations have tried to tie together free Wi-Fi hotspots into networks, but none has succeeded on a large scale.

"The problem with all these free projects is that they fail because everybody wants to be a freeloader and nobody wants to provide Wi-Fi," said Varsavsky.

FON, on the other hand, demands reciprocal sharing from its Linus users.

There are also commercial Wi-Fi networks built by T-Mobile USA and Boingo Wireless Inc. with hotspots in more than 50,000 locations.

Varsavsky hopes to have a much larger network by the end of the year because FON doesn't have to create the hotspots by itself.

Fleishman said FON has a chance to reach a critical mass of users, but it will be competing with free or low-cost municipal Wi-Fi networks in several cities. Google has itself offered to build a free Wi-Fi network to cover San Francisco.