[Updated with comments from Martin Varsavsky and Glenn Fleishman].
FON a wireless services company started by maverick entrepreneur Martin Varsavsky has just raised $21.7 million from Google, Skype, and Sequoia Capital. The cash infusion has been led by Index Ventures, the same company that had also backed Skype.

The company also announced that Danny Rimer (Index Ventures), Mike Volpi (Cisco) and Niklas Zennström (Skype) joined the board. Existing board members include Martin Varsavsky, FON CEO, and Antonio Fuentes, FON CFO. Danny Rimer, general partner at Index Ventures says, “In the same way that Skype filled a communications need, we believe that FON fills the need that people have of people getting connected to the Internet anywhere they go. Martin has created an elegant technology solution coupled with a highly viral community that could have the business impact on the broadband market that Skype has had on Internet communications.”

Writing on his blog, Martin says:

FON was launched just 90 days ago and we already have over 3,000 registered Foneros. While that number may seem small, 3,000 registered Foneros puts us at 10% of our 2006 objective in only 3 months… FON can now count Google , Skype, Sequoia Capital, and Index Ventures as investors and backers.

I had reported a few weeks back that FON was meeting with Google, but to get funding from them is a big surprise. It does make sense, since Google has its own wireless and network ambitions, aka GoogleNet. I had initially written about FON back in December 2005. Similarly, for Skype, to not getting blocked by traditional phone operators is going to be a big issue as well.

The organization that was started in November this year is based in Spain, and in the simplest terms is “Skype+Boingo+Open Source” but only in a WiFi context. Here is how it works. You go and download the software from the website, and update your WiFi router’s software. (Only works for routers that use linux for now). The software update allows you as a consumer to share a certain portion of your bandwidth to a “FoN” network. Essentially what it does is turn every router into a hot spot.

My dear friend and WiFi guru Glenn Fleishman was highly skeptical of the chances for this movement, and I will wait to hear from him again, for his opinion I value. He and others who wrote in after the first post appeared were pretty clear in pointing out that this is far from a slam dunk. Martin himself points out the problems for FON.

If you are not sure of your technical skills it is better that you simply buy a FON ready router. A second warning relates to your ISP. While we do know that some ISPs like Speakeasy in America allow FON do check with your ISP before installing FON as they may not yet allow it.

I posed all these questions to Martin, when I spoke with him this afternoon, minutes after he landed in New York.

“Now we have to the money and we will sell pre-configured routers for $25, so it will be a plug-and-play router and you can quickly become a Fonero,” he says. He says the company is going to make it easier for others to tweak their routers. In addition, he acknowledged that ISPs were going to be tricky, and he is working with about ten of them to figure out the details. Up until all issues are resolved, the “sharing”is the only option for users, and FoN is staying away from the “billing etc.”

“We are in negotiations with 10 companies, and some of them like Speakeasy have give us go ahead,” says Varsavsky “To other we are saying we will share the revenues with them. I am sensitive with the ISP because I have worked in the ISP business.”

He says, that if he could get Google and Skype to work together, then he can convince the ISPs, though he doesn’t think the “3G people are going to be happy. ” I am not sure if there is going to be an overlap, because the 3G usage patterns (as we will see in very near future) are going to be quite different from WiFi usage patterns. Varsavsky says the FoN network will be quite popular overseas, because unlike the US, the European and Asian countries are very dense and the populace tends to coagulate around urban centers. But he is hopeful that in US cities like New York, San Francisco, Chicago and Miami, there will be lot of Foneros.

Glenn was kind enough to send me an email and his comments on the developments are as follows:

Fon as a grassroots effort seemed to me to be headed to the same dustbin that led other companies to abandon trying to get individuals and small businesses to install hardware that would turn them into hotspots. Let’s face it: most locations that are good for a hotspot are either already under contract, don’t want it, or are complicated. Someone’s house in the suburbs or an apartment in Manhattan are probably bad hotspots for different reasons. But if Fon is going to use the money and connections it now appears to have to seed its network, there’s more of a likelihood of it working, especially given
what seems to be a very high commitment to signing up ISPs instead of signing up users and having them worry about whether their ISP finds Fon appropriate or not.

To date, it’s been quite tricky to set up a hotspot with authentication (user accounts and billing) without either having enough traffic to warrant a for-fee provider setting up your service, or, if you don’t want to charge, without either taking on all the tasks yourself (and not using accounts) or paying a managed provider $50 per month to be part of their system and have them handle tech support.

So Fon could fill a gap if they put out thousands of hotspots into cities that have gaps, and work with ISPs as a way to let customers easily build networks. I’m still pretty dubious about the notion of every home being a hotspot because that requires incredible luck and coordination to get continuous zones of coverage, and outdoor coverage really requires antennas — not just an access point in the window.

The idea has started to attract others as well. Wibiki is another such project. Sharemywifi.com is the latest to enter the space as well and seems to be a copycat of FON.

If you have broadband access and a WiFi network, you can share it with others, for free or a small fee. List your network on the site (it’s free). Then when someone comes to the site to search for broadband access and they find you, they’ll send you an email. You and the person can work out the details of sharing however you’d like.