Most people I know that work from home have company provided everything - computers, cellphones, paper clips, etc.- even a portion of the electric, internet and heating bill. But as you suggested - I agree - he’d be better off developing his product on his own time and marketing it as an entrepreneur instead of stealing time and resources from the boss.
When at work, with nothing to do, what do you do? housekeeping of files or inbox or mailing lists or checking the file cabinets and drawers for misfiles. Replacing worn banker boxes in the archives, reviewing workflow charts, reviewing production, catching up on scheduled reports and going back over the prior years’ reports with a critical eye for errors and wrong forecasts. Drafting employee reviews and revisiting some. Planning out future marketing campaigns if only for the annual company picnic. For IT I guess it would be updating software and firewalls - equipment maintenance, checking cabling, switches, routers, verifying continued availability of parts from vendors, updating procedure manuals, servicing workstations, cross-training coworkers —why is only one person trained on case file databases and not two or three??—, retraining on fire and emergency procedures and especially on company policy and standards- all the busy work that keeps office folks busy but still connected to productivity even on the very slowest of days. Want to watch TV at 2pm - better call in a mental health day and take it off of sick leave. A worker would never want to come into my office and claim they had nothing to do. I’d fire them where they stand for the simple reason they themselves just admitted they’re not of any value and have no initiative. Same for work at home. Nothing personal. A boss pays 40 for 40.
What do I do? Whatever they tell me to do. That's the role of a contractor. If there is nothing to do then I sit and wait until there is something to do. This is not uncommon in large companies. You're not always going to be busy - at least in some roles. They know that. Part of the job is to be ready, willing and able when they need you. If you watch TV or surf the net while waiting around for them to give you work to do, nobody really cares.