On closer inspection, today’s deal between Fon and British Telecom sounds like it could be a costly one for Fon and its investors. GigaOm is suggesting that Fon may have agreed to pay $8 to $10 to BT for every one of its broadband customers who agrees to sign up and activate the Fon service. If that’s true, with three million broadband subs at BT, that represents a potential liability of as much as $30 million. (Update: Just got off the phone with Fon USA CEO Joanna Rees, who says she has been closely involved with the BT deal. She categorically denies that Fon is paying BT for subscribers: “I have never heard that,” she says).
Buying customers is never a good thing if you can avoid it. Fon might need to do another round of fund-raising to pay for this deal. The $35 million it’s raised so far from Google, Skype, Index Ventures, and Sequoia, among others, might not be enough, especially if it cuts more sweetheart deals with other telcos around the world.
But here’s the really screwy part: BT is also now an investor in Fon, according to founder Martin Varsavky. So at the same time that it is presumably putting money into Fon with one hand, BT is about to potentially extract millions of dollars out of Fon with the other. I say presumably because it is possible that BT did not even put any cash into Fon for its stake in the first place (terms were not disclosed). Often in these deals, as the price of admission, the telco demands not only cash from the startup but an equity stake as well. In the telecom world, some things are never free. (Update: Rees says BT did invest cash. So maybe the deal isn’t so screwy, after all.)
Yes but in return BT provides free Wi-Fi for us Fonero’s, right?
Erik,
Martin replied on OM’s blog
Are you all going to ever put TC40 videos out there ?
No way Joselito!!!!!!!!!!!! Oops, sorry, Eriquito
See, Om did the real research while TC just copy/pasted FON PR crap in the previous post. Guys, don’t give in to PR!
Stephen,
I don’t see any research on Om’s part, just an unsourced allegation. Sounds like a lot of hate to me. Looks like blogger’s speculation puts his rep on the line. Where’s the research, homes?
I know nothing about this deal. But EchoSign also has a deep partnership with BT who whitelabells our e-signature services in the U.K. — and I doubt this deal, whatever it is, is ’screwy’. I can say from our perspective BT understands that partnerships require a win-win for all parties, and I highly doubt they’d enter into any partnership that isn’t profitable for both parties, out of their own self-interest.
It’s not ’screwy’. It makes sense.
FON is leveraging an existing broadband infrastructure to build an ubiquitous WiFi network. People are mobile. People want WiFi everywhere. Why should any ISP pour money into building a secondary WiFi network? Think about what this could do in the wake of Muni wifi crumbling?
It’s a smart move by BT. Go FON for being the ones with the innovation.
And, I agree with Jiddane. Source? None, just making things exciting in the blogs for the day.
Be nice if TC would get back to reviewing start-ups, rather than putting what seems all of its time reporting on million dollar investments of large corporations. I would rather you show me cool, innovative efforts by small groups of people out to impact the web, more than large corps doing business deals.
Sort of makes sense to me….smart move
http://vidsonly.blogspot.com
What is your purpose writing this post if you already now it´s not true???
Maybe you should delete it…
this article is crappy bullshit. no facts. only specs. very very unserious recherche. be ashamed.
http://english....o-way-jose.html
It’s not irrational for BT to invest in FON pre deal, as just by signing them up they have created huge value in FON.
Will it work – you know, everyone always craps all over Telcos for being staid and conservative. So BT has taken a risk here, its a clever move strategically, maybe FON works out, maybe not but it shows the shape of things to come and who is shaping it.
Wow, now that was a little convoluted.
That’s a really nice move. That’s a way for FON to become the future mobile dedicated wifi network, with all the service we can imagine, such as shopping in a retail store with all internet information and tools in your hand?
There is a lot or services to develop around mobile wifi. Starbucks & Apple started it some weeks ago, and I guess the future is mobile web. Whatever the ISP will be.
Well, that’s not news flash…Fon started paying 40 bucks for each new “customer” while ago, just when it begun giving away “foneras”..
Now the story goes the same, 10 bucks more on top of the 40.
On the BT stuff, well..again, the company (BT) is experimenting with soda at no cost, so does it matter to them at all?.
Cheers
update: your story is outdated.
update: rewrite it.
This post makes no sense.. You should probably delete it.