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FCC wireless auction could offer free Internet

Companies are pushing the FCC to hand over some remaining spectrum for a free, nationwide, ad-supported network, but one expert questions the math.

The companies pushing for a new wireless spectrum auction have ambitious plans for free nationwide Internet access, but the proposal faces some tough questions about feasibility even before the FCC bangs its first gavel.

The proposal dates back to May 2006, when M2Z Networks first asked the Federal Communications Commission (FCC) to grant it access to the 2155 to 2175 MHz band of wireless spectrum, which has gone unused for several years. In return, M2Z proposed offering free, filtered Internet access at low-end DSL speeds.

According to the original proposal, the free service would be advertising-supported and a higher-speed service being resold through third parties. Five percent of the revenues from the resold services would go to the U.S. Treasury.

The FCC eventually dismissed M2Z's proposal, but now it is revisiting some of the basic elements for a potential auction for the 2155 to 2175 MHz spectrum. The commission would require the auction winner to provide free filtered Internet access to 50% of the country's population in four years and 95% within 15 years.

That is when the proposed license would expire and, presumably, be up for renewal.

Although experts disagree about whether the model proposed by M2Z is even feasible, many other telecoms have expressed interest in such a deal.

"To presume that this could be done for a free service is an enormous stretch," said Tom Nolle, president of strategic consulting firm CIMI Corp.

Nolle said there are two key problems with the advertising-based model. First, a service aimed at lower-income users might have limited advertising potential.

"Valuable advertising really requires … a consumer who is valuable to the advertiser," Nolle said. "If someone is relying on free Internet service, it's possible they're doing that because they don't have very much money."

Nolle said video would be a second roadblock. Still one of the most valuable advertising venues, video would be prohibitively slow over the connection offered through this spectrum auction.

"This whole notion is basically a pipe dream," he said. "There is no evidence on current market behavior that anything like this could be made to work."

Nolle pointed to various attempts to create free public Wi-Fi networks in metropolitan areas, which were often announced to great fanfare only to fizzle out a few years later.

Given this uncertainty about such a business model, an auction winner would have a hard time obtaining financing for building out infrastructure for the spectrum.

M2Z seems to have found at least some potential early investors, however. In an FCC filing, the company wrote that it "has reasonable assurances" from various sources that it will be able to raise $400 million for construction and operational costs. It dropped names like Charles River Ventures and Redpoint Ventures as potential backers.

But even if M2Z is able to generate the capital needed to invest in its ambitious plan, the FCC may not give the company the chance to see whether it works.

Just as it previously made M2Z wait more than a year to hear back on the original proposal, the FCC may simply be trying to avoid a populist backlash by delaying any real movement on the proposals.

"People don't want to be realistic; they want to get something for nothing," Nolle said. "The smartest thing for the FCC to do is keep [the proposed auction] on the back burner [until interest erodes]."

One way or another, the FCC looks as if it will make at least an initial move by June 12, the day of its next meeting. FCC Chairman Kevin Martin said his commission would vote by then on rules for the auction, which could stipulate the free service provision.

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