Starbucks' Pushy New Neighbor

Wireless Start-Up Looks to Undercut Java Giant's Pricing on Wi-Fi Access

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YORK, Pa. ( -- A small Spanish start-up named Fon is becoming a big issue for Starbucks. And Fon doesn't even sell coffee.
Route canal: Fon is using free equipment to build presence in U.S.
Route canal: Fon is using free equipment to build presence in U.S.

In late February, the wireless-community builder launched a marketing campaign called "Fonbucks," giving away Wi-Fi routers to Starbucks' neighbors around the country. The idea was to get Fon routers close to Starbucks customers trying to connect to a wireless network, giving them a choice between $2-a-day Fon Wi-Fi access or $10 Starbucks T-Mobile access. The incentive for Starbucks' neighbors is a cut of the action: $1 for them and $1 for Fon. The promotion helped Fon hand out 6,800 routers in less than a month.

Last week Fon made it even easier to ditch Starbucks' and others' high-priced Wi-Fi. A deal with Time Warner Cable will allow any Time Warner customer to set up a Wi-Fi hot spot. That means coffee shops and small businesses, as well as enterprising neighbors, can easily offer low-cost Wi-Fi to customers and friends and make money doing it.

Happy neighbors
"I had gotten e-mails from Foneros saying, 'I wish I lived near a Starbucks; I could make a killing,'" said Joanna Rees, CEO of Fon U.S. Fon's data showed a high correlation between Fon usage and Starbucks locations, hence the "Fonbucks" campaign. "In New York or San Francisco, yes, there are a lot of restaurants and cafes that are Wi-Fi-enabled, but that's not the case in the rest of the country," she said.

Some businesses already offer free Wi-Fi as a way to attract customers. Large chain restaurants such as Schlotzsky's and Panera Bread Co. have offered free Wi-Fi for years. In fact, Panera operates one of the largest free Wi-Fi networks in the country.

"There are some costs involved in setting up and maintaining the network, but none of that changes with the Fon deal," said Ed Kohler, a web-business developer and blogger at "Businesses will see the most benefit from providing free Wi-Fi in exchange for a customer relationship. ... I don't think this will have a significant effect on the uptake of Wi-Fi. Businesses who saw Wi-Fi as a draw have likely already adopted it by now."

A Starbucks spokesman said in an e-mail that an increase in Wi-Fi hot spots overall is a good thing, but was also quick to point out Starbucks T-Mobile service differences, such as dedicated data lines in all 4,900 Starbucks stores.

"Some establishments may choose to provide free wireless access, but we believe the T-Mobile HotSpot service provides a much more rewarding experience by offering internet access in the comfort of Starbucks coffeehouses in far more locations," he said.

Security concerns
And while the idea of sharing bandwidth as a Fonero seems admirable and democratic, some have concerns. Ken Klade, an artist and gallery owner in Hermosa Beach, Calif., uses his Fon router at home but has decided not to use it at his gallery. He also keeps the home connection private because, he said, "I'm not really computer savvy, so I'm still concerned about identity theft and things like that."

Fon's main focus now is persuading folks to set up open hot spots to build the network to critical mass, which Ms. Rees defined on the low end as at least 250,000 hot spots in the U.S. There are about 60,000 (370,000 total worldwide). Fon is in discussions with other internet-service providers in the U.S. to extend that reach. Google, eBay's Skype, Sequoia Capital and others in the venture-capital business have ponied up more than $21 million to fund the start-up.

Once Fon gets its network in place, the Fon community and the ability to monetize it could add another revenue stream. "We know the location of the hot spot, profile of the user, so the idea of targeted ads and even free Wi-Fi with ads becomes possible," Ms. Rees said.

Boon for Time Warner
For Time Warner, the deal helps extend its service offerings to the 6.6 million customers who already have cable modems without having to build new and expensive infrastructure.

"Time Warner's play is high-speed in the house and wireless to go," said Craig Settles, president of and author of a book about public Wi-Fi. "It's low-risk and high potential return."

Fon and Starbucks could find a middle ground. Fon's Ms. Rees said T-Mobile's Starbucks contract runs out in 2009, and Fon execs have talked to Starbucks about moving inside.
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