Sitting on the porch at Finca Torrenova, his 800-acre retreat on this Mediterranean island, Martin Varsavsky ticks off the credentials of the group of Internet entrepreneurs finishing lunch at a nearby table. “He has 40 million uniques, he has 50 million, and he has 8 million,” Varsavsky says, referring to the number of visitors to Web sites owned by his guests - many of whom are also business associates and have joined him for several days of brainstorming about the digital future. These days, commercial victory on the Internet is all about scale, and Varsavsky, a 48-year-old from Argentina, can be forgiven for speaking longingly and in detail about his peers' achievements. No stranger to success - he has had a tidy crop of new media and telecommunications hits since the 1990s - he is still struggling to bring his newest Internet venture to fruition. Three years ago, aiming to create a global wireless network, he founded FON, a company based in Madrid that wants to unlock the potential power of the social Internet. FON's gamble is that Internet users will share a portion of their wireless connection with strangers in exchange for access to wireless hotspots controlled by others. The swaps, in theory, would allow “Foneros” to have ubiquitous, global wireless access while traveling for business or pleasure. But despite $55.2 million in backing from such corporate heavyweights as Google and BT, the former British Telecom, as well as newer enterprises like Skype and a handful of venture capital firms, FON and Varsavsky are still missing a crucial ingredient: scale. At the moment, there are just 830,000 registered Foneros around the world, and only 340,000 active Wi-Fi hotspots run FON software. Because it's built upon the concept of sharing Wi-Fi access, FON works well only if there are Foneros everywhere. Undeterred, Varsavsky says that what he currently lacks in scale he can make up for in huge cost savings, particularly because FON avoids the expensive proposition of having to build a worldwide network of cellular towers and Wi-Fi nodes from scratch. “Our army of Foneros is a much more efficient way of distributing a signal,” he says. “We believe WiMax operators will be happy to have some customers use their services for free and save billions in infrastructure deployment.” Varsavsky has worked overtime trying to line up more high-profile partners for FON. To that end, he traveled to Cupertino, Calif., last fall to meet with Steve Jobs, the chief executive of Apple. During that 90-minute meeting, Varsavsky says, the two men discussed why a partnership might make sense. Apple has sold millions of its Wi-Fi routers to residential customers, and its community of Wi-Fi users who share router access would be an ideal platform for FON. For his part, Jobs had developed an interest in Wi-Fi sharing because of the expanding number of iPhone users who are often frustrated by locked Wi-Fi access points. But, Varsavsky says, from the moment that he and Jobs met, their discussion devolved into an argument. (Jobs did not respond to requests to comment on the meeting.) At the outset, Varsavsky recalled, Jobs asked sharply, “Who needs your community?” and “Why should British Telecom bother to do a deal with you, and why shouldn't people just leave their routers open for sharing?” Varsavsky says he responded, “Why should you bother to do a deal with AT&T? Shouldn't iPhones just be connected freely with any cell-phone network?” Varsavsky says he left the meeting with the uncomfortable feeling that Apple might end up as a competitor rather than as a partner. But it wasn't only because of Jobs' legendary stubbornness that the Apple meeting apparently went awry. Varsavsky's own substantial ego also came into play - something he freely acknowledges when he talks about how he first got into business. The four-day conclave featured several unscripted “tech talks” in which entrepreneurs described problems they faced building their businesses. Participants included Lukasz Wejchert, the chief executive of Onet, Poland's dominant Internet portal. Deals with companies like Onet will be crucial if Varsavsky is to make good on his goal of having a million FON customers on each of three continents by 2010. The two companies recently came close to a deal, Wejchert says, but Onet decided that it was still to early for it to become an Internet service provider in Poland because the regulatory environment worked against new entrants. That major players like Onet are beginning to find FON a potentially profitable partner is promising, and Varsavsky's formidable networking abilities with politicians and entrepreneurs are also a plus. Ultimately, however, FON's success will hinge on its strategic soundness and operational prowess - not on Varsavsky's skills at working the cocktail circuit. He likes to refer to FON as a “revolution,” but so far his crusade has had difficulty gathering momentum because formal corporate alliances have been slow to jell. In Varsavsky's approach, FON's business is subsidized by non-Foneros - passing Web surfers who buy time for access to the network - which he can then share with FON's customers. The approach is different from that of Boingo, a Wi-Fi aggregator based in Los Angeles that charges users a monthly fee for using hotspots while they are traveling. Yet both FON and Boingo have faced significant resistance from Internet service providers that carefully restrict access to their customers, leaving the idea of a seamless wireless Internet based on Wi-Fi technology an unfulfilled dream so far. Varsavsky said he initially hoped that selling $30 Wi-Fi routers embedded with FON software would be all he needed to expand the ranks of Foneros around the globe. But this approach failed to gain traction fast enough, and he shifted gears. Now he is trying to steadily stack up distribution deals with ISPs. While some ISPs have ignored his company, Varsavsky says FON has gained ground among ISPs that are looking for a way to attract new customers in competitive markets as well as to compete with high-speed wireless cellular networks. FON now has a growing range of alliances, including ones with the BT Group, Neuf Cegetel in France, Livedoor (a Japanese ISP), and Time Warner in the United States, as well as a recent agreement with the city of Geneva, which is distributing hundreds of FON routers to residents. Now strongest in Britain, France and Japan, FON has recently made progress with new agreements with two major Japanese retailers and a Taiwanese ISP. And Varsavsky said he is close to major agreements in India and Russia. FON's losses have shrunk from more than a million euros a month to less than 500,000, Varsavsky says. He also hasn't given up his belief that a coming generation of wireless Internet technology will eventually give FON an even bigger boost. The first generation of Wi-Fi technology was limited in range, making it impractical for Foneros to share their routers widely. But a new wireless technology, known as 802.16, which should be more widely available to consumers over the next two years, will offer far greater ranges. This next generation of wireless communication, called WiMax by Intel and others, may allow him to complete his dream - in effect making it possible to weave together a wireless digital network in an urban area with nothing more than an army of Foneros willing to let their routers be used as micro cell towers. “Why should anyone have to build their own towers?” he asks. FON's future, he argues, will revolve around universal access to the wireless Internet. In the meantime, he faces a big obstacle in one of the world's most lucrative communications markets: the United States, where newer cellular networks with flat-rate pricing may prove a challenge because they will provide universal high-speed coverage. In Europe, the Internet landscape looks more promising. The European Commission's decision last summer to place a price cap on voice calls - to make cellphones more affordable for residents traveling within the European Union - didn't include mobile data. Recent high-speed wireless networks introduced in Europe also use per-megabyte pricing, discouraging the streaming of large files like video. That leaves a potentially big opportunity for a widely accessible sharing solution for travelers. Yet even in Europe, there are potential roadblocks, not the least of which has been a historically inhospitable atmosphere for entrepreneurial gambits. “Europe has a larger market than the U.S.A., but it is culturally fragmented and risk-averse,” Varsavsky says. “But the differences are narrowing, and now there are European venture capitalists and a local entrepreneurial culture.” Yet he remains undaunted when he discusses his unfinished revolution and FON's prospects. “FON,” he said, “is like a telephone company built by the people,” he said. - NYT __
