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Foneros Panic as Major Legal Loss for Fon Surfaces

July 10, 2009

Fon has been keeping their mouths shut about a legal case in Germany (DE) that they lost LAST YEAR, when the courts ruled that Fon’s resale of Internet service constitutes a breach of DE fair business practice. They’ve also lost the appeal, and the ruling was declared “provisionally enforceable”. This means that Fon can’t charge money for their services throughout DE, even while a second appeal gets under way. Fon remains noncompliant at this time.

Fon CEO Martin Varsavsky issued an unconvincing statement downplaying the seriousness of the matter in his Spanish-only blog:

There are rumors that the FON network was outlawed in Germany. This is not true. We lost a lawsuit against a small operator who does not want its customers (to be) Foneros, but we are negotiating with them to (make them) realize that, like many other operators have realized, that Fon is a good business for them.

Martin still hasn’t gotten around to posting to his German-language blog audience!

Fon issued a similar statement (plus advertisement) for David Garcia (Fon Customer Service) to relay to those concerned within the English Fon Board:

We lost a trial for unfair competition with an ISP that their legal team dosn’t want that their customers share their internet connections, but besides appealing against this rule we’re also negotiating with them to make them realize that Fon is good for their business, as it has happened with other ISPs and mobile phone companies such as BT in UK, ZON in portugal, Comstar in Russia, E-plus in Germany, Neuf in France, etc.
Those companies know that Fon is their partner and it helps them to get a better appreciation from their customers, offering them not only internet at home but at hundreds of thousands of other places.
Also, let me reassure that this ruling only affects FON as a company and not to the Foneros, be them Linus, Bills or Aliens.

These reassurances are weak, as it has been clearly said the DE courts outlawed Fon’s business practice itself, not just within the scope of a single plaintiff.

The Timeline:

  • Nov 11, 2008: FON lost the first trial, Foneros kept uninformed.
  • June 05, 2009: FON lost the second trial, judge rules “The decision is provisionally enforceable”. Foneros still kept uninformed.
  • July 07, 2009: News is broken by a German Legal Weblog Telemedicus with this article and this posting of the court ruling (links lead to English translations).

The court’s decision is that FON has to pay €200,000 due to the Security issues this causes, €25.000,00 for failure to comply by providing a list of Foneros which are customers of Plaintiff “1&1″. Due to losing the second trial, it seems these amounts are now increased to 110%. Upon FON’s second conviction, each breach requires payment of up to €250,000 – or six month’s imprisonment, and halt FON operations for that duration.

Fon proposes to Foneros and the Press, that it is appealing the second ruling, and at the same time, pursuing a “partnership” with the Plaintiff, “1&1?. It is not explained why they believe they will succeed now, when presumably, failure to “partner” resulted in the lawsuit in the first place. Nor is it clear how they can pursue an appeal without offending the Plaintiff at the same time.

What will happen to Foneros in DE, if Fon loses the right to operate there? At the least, there will be no more sales of passes to Aliens there. Free roaming will probably continue among Linuses and visiting Bills. However, a major component of the Fon System will be destroyed.

It is also unknown what effect this legal loss will have on Foneros in other countries, who may belong to ISPs which are also unwilling to passively participate. Can we depend on Fon to accurately turn Day Pass sales on and off at will, depending on the Fonero’s ISP? Will Fon update older La Fonera WiFi router’s firmwares to permit disabling sharing? – this is a feature now found in La Fonera 2.0. If Fon updates older firmware for that feature, will they consider including the software-based improvements which they have seen fit to provide only in newer hardware?

If Fon cannot resell Internet service in DE, what could they sell in that territory instead? Perhaps they will take my gift idea of using the routers to host VPN servers so they could sell privacy and security enhancement services? Foneros and Aliens worldwide would appreciate this as well!

Elfonblog thanks skynetbbs for providing translation of the lawsuit timeline.

The Five Stages of a Fon e-Movement

October 22, 2008

Preface: So the reader understands, the following is a summary of changes in direction which Fon has gone through since conception. This is not a parody nor wish-list. You may not have been aware of some of these former lives of Fon, but you can verify everything with your favorite search engine.

Stage 1) Distribute free Fon hotspot-for-VOIP-handset software, and build a community of volunteers who will run it on dedicated PCs, so that the public can save money on voice calls wherever such a (ad-hoc) Fon hotspot can be found. These are comparable to today’s femtocells, only they use wifi instead of rebroadcasting cellular frequencies, and are comparable to Fon’s experimental “FonSpot” software which is based on Linux. Fon to openly challenge monopolistic telco companies by selling cheaper services. Fon to profit by reselling Internet bandwidth donated by the volunteers.

Stage 2) Stage 1 plan fails to attract enough press or jump certain legal obstacles. Fon disavows it’s original plans, and remarkets the company as a community of volunteers who run Fon hotspots for PCs, with emphasis on the fairly obligatory “free roaming” feature offered to members. Changes the pronunciation of the company from “phone” to “fawn” and claim that they are named after the North African Fon Ethnic tribe. 😯 Ad-hoc-wifi PC software is dropped, and Fon is retooled as router firmware for popular wifi routers. Distribute free router firmware, and sell a supply of Linksys routers pre-flashed to get things moving. Official Launch of Fon as a Revolution, a Network, and a Community. The populist, community friendly facade permits Fon to attract fans and gloss over shortcomings in their membership terms and business plan. Most adoption takes place among techie hobbyists. The Press applauds.

Stage 3) Stage 2 plan fails to establish sustainable market for wifi sales, and Fon never explores whether it is their terms, their price point, or their chosen market which is at fault. Linksys routers ran out of stock. Product partnerships failed due to Fon’s exaggerated promises, creative alternate definitions and numerous unmentioned conditions. Member churn is high, because the Fon program does not keep their interest* long enough, and the routers are very easy to improve with better firmware (designed by an disgruntled ex-Fon developer). Fon invests literally no resources on the “revolution” or “community” aspects of their network, unless it makes a good soundbyte for the press. After an extended period of inactivity, during which the Fonero Community nearly completely dies away, Fon begins replacing the old open-source routers with a proprietary one. In key areas, a supply of those routers is given away or sold at cost, to encourage rapid growth of the Network. Most adoption now takes place among newbies, people who need a cheap wifi solution but did not read the fine print, and others who are far less likely to be dedicated to something because they weren’t asked to really invest in it. The Press applauds loudly. Fon now to profit from router sales, and by inflating the value of the company for eventual resale.

Stage 4) Stage 3 plan fails to generate sufficient nor permanent network growth. Proprietary routers prove to be hackable, but most owners simply discard them now when they lose interest*. Fonero Community, which Fon has failed to establish a relationship with, and has little influence over, is reaching out to The Press independantly. Foneros have studied and analyzed Fon’s TOS now, and are growing increasingly unhappy. Fon focuses on profitable router sales, and actively conceals statistics which reveal real growth, churn, and actual service availability. Fon diverts resources to non-wifi related gimmicks and side projects, neglecting the usage complaints and bug reports from the members. Fon to perhaps profit from side projects, when they become independant companies, by bleeding Fon for research & development resources, thus saving them expenses.

Stage 5) Fon forges “partnerships” with other wifi networks by granting “free roaming” for their members, to the whole network of Fon hotspots. These roaming agreements are typically one-way, free only for the partners, and the rest are subject to many conditions for the Fon members. “Partner” hotspots are quickly added to Fon’s census to suggest rapid and healthy growth. Everything is marketed as “good for Fon”, as it is suggested that members of the public are more likely to purchase a Fon router of their own if they are aware of the Fon concept. Emphasis is placed on “network growth”, but this is measured primarily by router purchases now. Fon claims to operate openly, but has never revealed statistics on day pass transactions, repeat sales, or membership churn. Fon continues to profit up-front from router sales, and continue to craft clever statistics to make the company seem more healthy. Fon still reports no churn, and the available figures strongly suggest that they are deliberately ignoring it. Fon CEO and Fon PR contradict each other’s growth statistics, but both suggest that Fon will cease operating at a loss by the end of 2009. Fon to profit if there is a buyer after that point?

Fon claims to have gained it’s one millionth “member”, using a brand new definition of such, and stretching that to a rather wide interpretation. Only a small handful of blogs reported this event. The Press at large ignored it.

*Foneros lose interest for various reasons, including: attracting too few customers, being unable to find hotspots to roam onto, unanswered questions about Fon’s legality, doubts about Fon’s security, objections to Fon’s membership and profitsharing conditions, incompatability with Fon’s router hardware/firmware, other hardware failures, discovering that they were unable to expand an existing LAN on a budget as hoped, or other reasons which Fon did not live up to their expectations.

I have left out a few twists and turns, because they either didn’t last very long, or didn’t result in signifigant change in Fon’s growth, method of operation, or culture. It would be an interesting excercise to draw up an academic timeline of Fon events and announcements, with references, and emphasis on points of contradiction. As for La Fonera 2 and Fonosferatu; we shall see. At the moment, I fear that they are just time-killers to make the company look lively until it recovers or gets sold. Fon has time on it’s hands now, and has those expensive La Fonera+’s to unload. The Linksys are gone, the La Fonera 1.x are probably running low, and there are only 1000 La Fonera 2’s. Fon is still relatively idle. Even their directors and developers are starting to wander into the message board now, looking for amusement.

So in a nutshell, Fon has clearly been sailing for a long time without anyone with a firm grip at the helm. The exaggerations and eroding credibility began quite early on. Fon has lost passengers and officers at every port, and Fon’s final destination changed frequently, with little regard for the remaining passengers. Fon hopes to pay for the cruise by selling the passenger’s belongings, and eventually the ship. 🙁

Interestingly, Fon CEO Martin Varsavsky has begun to carefully admit that Fon isn’t doing so well these days. He’s blaming it on the pending economic collapse, of course. However, we know that Fon has been showing signs of floundering and rebooting for a long time now. The layoffs Martin frequently mentions in the present-tense actually happened months ago. If the economy was strong, Fon would be doing just as bad, but still pretending things were rosy.

Fon Is Safe in Germany

July 11, 2008

The Frankfurt court of appeals has ruled in favor of a German citizen, accused of sharing copyrighted music files over the Internet. The defendant had been previously ruled guilty, though he pled that someone else was guilty of the offense, using his open wifi hotspot. The court of appeals recognized that there was insufficient evidence to prove the defendant guilty in the first place, and that German citizens are not automatically guilty of offenses committed by others, using their unrestricted Internet connections. Read this arstechnica.com article

This may be great news for Foneros in Germany who worry about their liabilities, when they provide a Fon hotspot! Fon does not consider their hotspots “open”, but neither do they really qualify as “closed”. Fon hotspots are not encrypted, and Internet access can be obtained instantly, without proving one’s identity. Additionaly, a hacker might sniff traffic in order to capture an Alien’s Fon session cookies, then spoof their MAC address, to continue their valid Fon session after the Alien has shut her PC down for the day.

Unfortunately, there have been similar incidents here in the USA, where the courts did not accept the “open hotspot” defense. So far, none of these has involved a Fon hotspot. It remains to be seen whether Fon will provide evidence which could exonerate an innocent suspect.

Fon does not split money 50/50

May 8, 2008

For a long time, Fon has been advertising that they split the money they take from Aliens, with the Bills, “50-50?. If you have paid very close attention, Fon quietly mentioned that there may sometimes be taxes or fees, but continued emphasizing “50-50? until recently. A review of their web pages shows that they are now much more forthcoming with how the system works, but they’re still refusing to say how much these “fees” are, and what they go to. The key term is “net profit”, which is an undefined subset of the “gross profit”.

A current thread in Fon’s English language discussion board, discusses the reason that Fon holds our money for so long, after we have “earned” it. Presumably, in Fon’s own interest-bearing bank account. The setup works like this: most of us have to buy our routers from Fon, for which we receive no guarantees, nor help in making it profitable. This merchandise sale is profit for Fon. Then, Fon takes the lion’s share of any money which IS made at our hotspots. Finally, Fon withholds Bill’s share until his “Piggy Bank” had exceeded a certain threshold. This threshold was just changed from $30 to $20, for which Fon may be commended.

So the biggest remaining issue is: just how much of that €/$3 fee from the Alien really is provided to our poor Bills?

(Click images for full size popup)

This example breakdown uses data supplied by board-poster nick123, with fees which apply there in the UK. As you can see, these “fees” which Fon trivializes to the point of hardly mentioning, and never itemizing, amount to nearly 1/3 of the whole fee! Certainly, this chart would be resized for pay splits in different markets. I’d like to know what those splits are, since Fon doesn’t publicize them. It’s Fon’s big surprise to us, when we examine our Piggy Banks.

Since so much money is being wasted on moving money, I think this shows that Fon’s “€/$3 everywhere” business plan is terminally faulty. Aliens should be given the option to buy larger chunks of online time, to minimize transaction fees. Of course, this makes the issue of billing by the minute for roaming Aliens, and paying by the minute for Bills, more desirable. Since Fon does log hotspot connections down to the second, and they can work out the figures in-house, this would not present an insurmountable complication or expense.

I’ve often written that Fon’s only real service to the Fon Network, is the convenient receiving and dispensing of money, in exchange for maintaining and providing the authentication database. That database is the only unique intellectual property that Fon has developed in the whole two years of operation. It’s convenient for individuals and businesses to seek a “hotspot in a box” solution, which comes with convenient authentication and billing. However, Fon’s profit-sharing terms are, frankly, hideous to anyone actually hoping to make money from the project. Other “hotspot in a box” providers allow much more flexible billing terms, along with firmwares or pre-flashed routers with much better feature sets. Fon sticks with “€/$3 everywhere”, not because it is the best system, but because it is Fon’s system, and they’ve become identified by it.

Fon is going to need to reorganize, or die – unless they sell the company in time. Fon should switch from taking ~%30 of the loot, to charging a fixed transaction fee to every Bill who hosts an Alien, who stays online at least long enough to cover that fee. Fon should accept larger payments from Aliens, and let them use it up by the minute. They should likewise, pay Bills by the minute. Fon should allow Bills to choose when to transfer funds out of the Piggy Bank, but should feel free to charge a reasonable service fee. If Fon wants to be a financial success, they need to stop taking divine tribute from the Fonero peasantry, and instead provide concrete plans for Foneros to help them increase their number of Alien events.

Let Fon sell their own routers, fine/whatever, but don’t allow them to lock out other equipment and firmwares. Being compatible with Coova/Chili/spot is a very easy goal to reach these days. Fon and its active community can provide development and features and scrutinize the security in homebrew hotspots. It kills me that I no longer work for a webhosting facility. I had free rack space and bandwidth there, and I would have certainly set up my own authentication server and webhost to provide exactly the services and terms which I’m describing here. I could be a thousandaire by now.

EDIT: nick123 has offered some additional information, based on his knowledge of UK taxes and PayPal fees. His data suggests that the breakdown looks more like this:
(Click image for full-sized popup)

This is damning evidence that we need to eliminate the credit card/PayPal transaction fees whenever possible, by allowing Aliens to purchase larger blocks of connect time.We need further accountability from Fon. What does that remaining unknown portion go to? What is the split in the USA? In other countries? While Fon does quietly disclose that there are “fees and taxes” involved, i’m sure that they are legally obligated to itemize them for our individual cases. It is indeed unfortunate that I must put that last sentence in such a way, for I have little faith in Fon disclosing just because it makes us happy. :(

Accountablility is to politicians and businessmen, what sunlight and garlic is to a vampire.

Why have so many Foneros abandoned Fon?

April 4, 2008

Fon President Martin Varsavsky has posted an adorable leetle survey on his blog today. Either he has no idea why Fon is failing under his leadership, or else he knows, and won’t list those reasons because he has no intention of fixing them.

The reason most Foneros have quit Fon is due to anemic equipment and firmware imposed upon them, and the culture of dishonesty in Fon’s press releases and business practices.

After promising to give us firmware which supported dual-SSIDs, Fon switches the bait and presents us with their proprietary, locked-down 1-port router with this feature. No dual-SSID for us Linksys and Buffalo Foneros. It’s just as well, because it turns out that many wifi adapters can’t cope with the little transmission trick that produces two SSIDs.

People with pre-existing home networks discover that they can’t access their LAN resources, even when using the private WLAN. There is no “bridge to WAN” feature. This device *looks* like an AP, but is instead a NAT router. This is one of the main reasons people abandoned Fon. They didn’t want to *start* a network. They needed to *expand* one (and on a budget).

This little overheating brick had WDS meshing built-in at first, but this was undocumented. Hackers learned to use it to aquire an Internet connection without paying or logging in. Fon quickly took WDS out, and has still never admitted it existed. Pres. V pontificates in his blog that the range-extending Fontenna (he sells) is superior to connection-relaying meshing, despite the poor performance of said Fontenna. He should have instead sold us a kit to mount the router outside, with an embedded booster antenna and PoE adapter.

Nearly two years later, La Fonera still doesn’t support MAC cloning, which is such a trivial feature to add. It is necessary for modems/ISPs which lock your service to your WAN MAC. This is another big reason people abandoned Fon- they never got it connected to the Internet. This feature wouldn’t even threaten the sales of additional Fon hardware. :(

Instead of improving the La Fonera firmware (except to rush out patches to keep people from aquiring better access to their device and developing new features), Fon spends R&D on further routers: Want one precious LAN jack? Buy the new router, at twice the price of the old one! This is surely why they don’t give us WAN bridge in the original La Fonera for free.

What would Foneros really prefer that Fon focus their attention on? Bringing the feature set of the router at least up to the point of every other cheap router on the market, nurturing and empowering the creative community that has built up around Fon, and showing some real progress for a change. Instead, here is “La Fonera Orwellian Name”, for $100, which lets you download free bittorrents of Fearless Leader’s video clips. Ugh.

“Buy thees Skype phone and make calls for free at any Fon hotspot in the world!” they said. Well, sure- if you had the encryption key for all of those Fonero’s private networks. The darn thing wasn’t able to log in through Fon’s public hotspot, until many months later, when a firmware patch was provided. Calls were then free if they were Skype-to-Skype, or you were spending the included “free” 20 trial Skypeout minutes. Skype pulled the ads down. Ugh.

“We split the profits 50-50!”. An outright lie. First, Fon takes unspecified “fees and taxes” out, then splits what is left. Fon refuses to itemize this amount, which varies from country to country and depends on the ISP, so there is no way to tell if they are paying you fairly. Fon only pays Bills if their hotspot is the Point Of Sale for day passes, not for bandwidth, length of wifi sessions, or number of customers. If paid-up customers wander over to his hotspot, Bills get nothing for the service he provides.

Fon’s price per day is quite reasonable when compared to other for-pay mobile Internet services. However, wifi is free in virtually every coffee shop in the USA, many restaurants and libraries, and provided by many municipalities throughout the city centers. Fon won’t budge on the price, or add something to make their service more desireable than free wifi, like VPN encryption.

Fon’s system mimics other “instant hotspot in-a-box” offerings, but these competitors are offering more flexible terms in setting prices and managing equipment. The competitors let you have control of your Internet connection, your router, and the appearance of your hotspot to the public. Fon pretends that they do too, but in reality, you have almost no control over what they clearly consider to be *their* router, and *their* hotspot.

It’s been obvious in recent months that Fon is fading away. Varsavsky spends his time supporting side projects, which have nothing to do with wifi (Mexican Wave, Fon URL Sortener, and several ways to abuse Gmail), and writing bizzare articles in his Fon Blog. Varsavsky recently dumped much of his Fon stock.

Fortunately, there is a thriving community of hackers who still develop improvements for La Fonera wifi routers. If a Fonero is willing to void his router’s warranty, he can have his MAC cloning, WAN bridge and much more. While they can do nothing about Fon’s awful profit-sharing, the routers themselves can even be flashed with entirely different firmware, and be used with other wifi networks, or even liberated entirely, including features usually found only in very expensive equipment.

There are so many other points, I could write volumes. Please visit Varsavsky’s blog, and instead of taking his survey, leave him comments which surely will fall outside his carefully selected choices.

UPDATE: Y’all will find this very interesting. Martin approved another round of comments to that post in his blog. While he approved a comment I made under a fake name, he did not approve a more coherent comment I made, as myself, discussing the exact same points, somewhat earlier that day. This is not proper management of his blog, this is censorship of those whom he dislikes. What a skunk!