I just came back from a dinner organised by the International Press Club of California at San Francisco's restaurant Bong Su and hosted by Spanish company FON. Sitting at the table were the foreign correspondents based in the Bay Area, including reporters from Britain, France, Germany, Italy, Japan, Sweden and Switzerland, as well as Dale Taormino, heading business development for FON U.S.A. Fon CEO, Martin Varsavsky, attended but was not feeling well and had to leave early.

FON's goal is to create the largest WiFi network in the world - it has currently 160K WiFi hotspots. The way it works is quite simple: you buy a WiFi access point (a la Fonera) that creates a public and a private wireless connection (SSID) and start sharing your broadband connection. As a new member of FON, you'll then be allowed to connect to any hotspot managed by FON for free and/or take advantage of special tariffs on their roaming agreements with Boingo et al.

Other interesting tidbits about FON:

- The U.S. is FON most challenging market;

- Best markets for FON are the UK, France and Japan, Mainly due to reseller agreements signed with local broadband Internet access provider like British Telecom or Neuf/Cegetel. In the U.S., only cable companies seem to be interested in FON's sharing model but hotspot providers like T-Mobile might find it interesting to more quickly expand its own WiFi network of 9,000 hotspots in the U.S. ;

- The WiFi router costs approx. $35. But then you can refer up to 20 friends who can then buy the same router for about $6 a piece. FON is definitely subsidizing the router to accelerate its WiFi coverage across the U.S. But would they have enough money to burn before it's over?;

- FON U.S.A. will also start selling the Fonera router at retail stores like Best Buy, Fry's...

- In the UK, Fonera signs up 300 to 1,000 customers a day. British Telecom represents 20 to 25% of the UK market for Internet broadband.

So what's the benefits for a broadband Internet provider to sign up with FON?
FON is promising ISPs that they'll reduce customer churn (good for the bottom line) and increase broadband subscription (good for the top line). The hope is that in order for you to keep accessing this network of free WiFi hotspots, you have to keep sharing your broadband connection and thus keep a subscription to your ISP. It makes sense to me.

For consumers living in dense urban areas, especially near a Starbucks for example, they can hope to make money with sharing their Internet connection: FON does a 50/50 revenue sharing of any "pass" they sell with a particular hotspot. That also make sense to me.

Now that the business model makes totally sense, why isn't it FON more successful and still losing money? I heard that this maybe a management issue. Heard anything?