BT to Invest in FON?

FON, the Spanish share-your-Wi-Fi services company, is close to announcing a new round of funding that could total to as much as 10 million Euros (shade over $13 million.)

While some of its existing investors – Index Ventures, Skype and Google – are coming back with more cash, the word from telecom circles in Europe is that British Telecom is going to invest in the wireless router company. It is one of the new strategic investors in the company. FON had raised about $22 million in a previous round of funding. With this round the company has raised close to $35 million in venture capital funds.

FON is the latest start-up by Spanish telecom entrepreneur, Martin Varsavsky, who has made a name for being a thorn in the side of incumbents. Ah the sweet irony that is life! We have not been able to confirm the rumors so far, but will update the story with more info as it surfaces. Varsavsky declined to comment.

There were some rumors of a partnership between FON and British Telecom, where FON software was going to be bundled into BT Wi-Fi gateways. If you are wondering why BT is interested in FON, there is a seemingly logical explanation.

When I visited BT last summer while reporting a story for Business 2.0, the senior management of the British incumbent carrier was pretty bullish on the whole notion of dual-mode phones and municipal wireless. They talked about their Fusion strategy quite excitedly, even though the first version of BT Fusion was BTF: big time flop.

Dual-mode phones are phone that have Wi-Fi and cellular capabilities in one single handset, and in an ideal world there is a seamless handoff between the two networks once you are in range of a Wi-Fi network. [Okay those of you, who are smirking in the back of the class, stop, because we all know the jokes.]

While this does seem like a distant dream, eventually it will happen. Nokia, for instance, is pretty confident that most of its mobile phones in the near future will have Wi-Fi capabilities built into them. BT can offer voice (and other services) over Wi-Fi when in range of a FON node, and when out of range it can switch to the Vodafone network for cellular access.

T-Mobile USA is trying something similar up in the U.S. Northwest, though it is through a customer’s own Wi-Fi network. of France has also been playing with a similar idea and has bundled FON-like software in its residential gateways.