Fon, the Spanish startup that wants to bring free WiFi across the planet, just raised $9.5 million (six million Euros) in a C round led by Coral Capital Management. Also investing was British Telecom (which struck a distribution partnership with Fon last October), Google (a previous investor), investment bank Allen & Co., founder Martin Varsavsky (through his Jazzya holding company), and Joi Ito (through his investment vehicle, Digital Garage). That brings the total raised to more than $50 million (34 million Euros).

The way Fon works is that you set up a Fon WiFi router at your house or business and you can either give WiFi access away for free to other Foneros in exchange for free access when you are roaming about, or you can charge people for access and get 50 percent of any resulting fees. Fon says it has 170,000 active routers worldwide, with the leading countries being the UK, Japan, France, Germany, and the U.S. (in that order). In the UK alone, there are more than 70,000 BTFon members. By linking up with the telecom companies (Fon also has a partnership with Neuf in France), Fon gives them a way to offer their customers roaming broadband service. Fon is preparing to launch in Russia with a telco there called Sistema, whose largest shareholder is Coral. Says Varsavsky:

As far as our strategy, more and more we are collaborating with large telcos, which pundits wrongly thought were going to be our enemies. And that is because we have proven that a Fonero is a more loyal bandwidth customer as he gets to roam for free.

He plans to use the new cash to launch Fon in Russia this June, and to put out a new version of the Fonera router (also in June). The Fonera 2.0 router will come with a USB port so that members can connect it to a hard drive and upload photos and videos to the Web, download movies, or otherwise manage their media on online services. And in December, Fon will release an 802.11n WiFi router.

(Varsavsky also recently launched Twixtr, a side project that is like Twitter with photos).

FON (better known for building a WiFi community) launched Twitxr today through their FON Labs group. Basically, it’s Twitter but allows picture uploads when sending a message (which makes it particularly useful for camera phones). FON founder Martin Varsavsky announced the product on his blog.

So, yeah, basically it’s a photoblog. You can easily set it up to automatically send your messages to Twitter and Facebook too, though, which is useful. My Twitxr account is here. Here’s an example of a message that was copied over to Twitter. Another feature I like is the fact that you tell it where you are, so location information is included.

Varsavsky says it’s specially designed for the iPhone, and they’ve created software that makes uploading text and a photo from the iPhone very easy. As a third party application, though, it isn’t officially available for the iPhone. You have to “jailbreak” the phone before you can install their application. It looks like you can’t simply grab a photo that you’ve taken normally from the iPhone, either. You have to initiate the photo through the Twitxr application. The application automatically adds location information to your photos and updates.

Twitxr is the upteenth variation of Twitter to appear (see Jaiku (acquired by Google), Pownce, etc. One clone has even gone to the deadpool. This isn’t even the first Twitter-variation to include photos – see Zannel . This is something Dave Winer has been working on with his FlickrtoTwitter project as well – which sends links of your new Flickr photos to your Twitter account. And photoblogging is nothing new. So as pretty as Twitxr is, perhaps FON should stick to wifi.

Update: I’m actually going to re-jailbreak my iphone to test the software – the fact that uploading is so easy and it adds location information is worth noting. If it works really well, this could actually be a reason for me to stop posting directly to Twitter.

“Give to receive” is the mantra of a new initiative by Spanish startup Fon to bring “free” Wi-Fi to the residents of San Francisco’s Castro District.

The plan is the same one tried by Fon elsewhere: the company gives people Wi-Fi routers to install in their homes with the understanding that they will use them to share some of their internet connection with other Fon users (so-called “Foneros”). The routers emit two types of signals: one for private usage and the other for secure access by fellow Foneros. Share some of your own internet connection and your neighbors will share back, effectively expanding the geographic area of the internet access you pay for.

The scheme has recruited over 635,000 users in Europe, Asia and America despite the bans many ISPs place on sharing internet connections. Fon is conducting this San Francisco effort with the support of the San Francisco Bay Guardian and will make money off the program after they stop giving the Wi-Fi routers away for free. If you do end up paying for a Fon router, you’ll have the chance to recoup your money (and maybe make a profit) through the proceeds of FON Access pass sales.

Fon joins Meraki in the attempt to bring widespread Wi-Fi to San Francisco after Google and Earthlink failed to do so themselves. Meraki’s strategy differs from Fon’s in many ways, particularly in its ad-based monetization strategy.

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.)

Spanish WiFi startup Fon is invading England. In its quest to turn everyone’s home and business WiFi router into a worldwide network of shareable hotspots, Fon just inked a long-rumored deal with British Telecom. BT’s three million broadband customers in the UK can now opt to join the Fon network, which gives them access to 190,000 WiFi hotspots around the world. BT joins Time Warner Cable in the U.S., and French broadband provider Neuf in endorsing Fon’s WiFi-sharing across their customers.

Most ISP service agreements still ban customers from reselling or sharing their broadband connection. But Fon is convincing some ISPs that it might actually be a selling point to be able to tell customers that included in their home broadband bill is access to free WiFi when they travel across town or across the world. Fon claims its network of WiFi hotspots is already the largest in the world. Investors in Fon include Google, Sequoia Capital, and Index Ventures, and now BT as well.