The controversy surrounding the FCC's interest in auctioning a nationwide wireless broadband license that would require the winning bidder to offer free broadband services is at the forefront of the news these days. So it's only fitting that I talked to Milo Medin, founder, chairman and CTO of M2Z, the company that started this whole idea back in 2006. The company asked the FCC for 25 megahertz of vacant spectrum in the 2155 MHz to 2175 MHz band to offer free wireless broadband service, and the plan was to repay the FCC for the license by offering the government a cut of revenues. The FCC subsequently dismissed M2Z's request because of the fact it couldn't give away the spectrum, but M2Z has still spent the last two years gearing up for a business like this, lobbying the FCC and working with potential partners to prove out that such a business model can work.
The commission is proposing to combine the 2155 to 2175 MHz band with the 2175 MHz to 2180 MHz band to create a 25-megahertz swath of spectrum that would support a nationwide license. The spectrum is referred to as advanced wireless services-3. Under FCC proposals, the licensee of this band would be required to use up to 25 percent of its network capacity for free, two-way broadband service at data rates of at least 768 kbps downstream. A network-based filtering mechanism would also be required for the free Internet service to protect children and families from obscene content. The winning bidder of the AWS-3 band would also have to offer coverage and service to at least 50 percent of the U.S. population within four years and at least 95 percent of the population by the end of 10 years.
So the first question is: How can a company make money with this type of business model? At a basic level, Medin says the answer lies in low-cost infrastructure and local advertising. On the infrastructure side, M2Z favors a variant of 802.16 that uses smart antennas to provide much higher efficiency than a conventional system. Using technologies like MIMO and beamforming, such a network would need fewer base stations and offer higher capacity, enabling lower costs and faster deployment timeframes.
On the business side, Medin says a localized, location-based advertising model can subsidize the free part of the network. "If you look at where Internet advertising is today, there is a a whole class of businesses that don't advertise today because advertising is not location based. There is no point for local businesses to advertise on Google," Medin said. Through such a revenue-sharing model, M2Z is not expecting to lose money on free services, he said. Free services would also help the company gain the volume it needs to push down the cost of modems in order to compete with cable and DSL.
And what about the arguments from companies like T-Mobile and Qualcomm about concerns over interference in the AWS-1 band? Medin says the core technical rules that have always been advocated for AWS-3 are the same rules that were used for the 700 MHz auction. "It's hard to argue that the same rules worked at 700 MHz but don't work in this band," he said.
How about the idea of offering a family friendly free service that filters out pornography? Can the government really do that? Medin says since the service is free and the operator wouldn't be collecting credit-card information or social security numbers, they simply wouldn't know who is at the other end, and the courts seemed to have upheld the notion that restrictions can be put on it. Just look at free broadcast TV, he said.
Operators also argue that it isn't fair the FCC is crafting rules for a certain business model. What does Medin say to that? "Last I looked, the FCC required broadcasters to offer free TV," he said. "Different people have different arguments depending on what side of the equation they are on. Big wireless carriers don't want competition ... All of the different rules in previous auctions with regards to open handsets, buildout requirements etc. are all business models and all have impacts on what is in the public interest."
And finally, obviously M2Z is going to bid on the spectrum right? Medin says yes, but it also depends on whether the FCC deviates from the rules it is proposing. M2Z has been working with technology vendors and potential advertising partners for the past two years preparing for this type of business model. "Whether we or someone else does it, its time has come," Medin said. "There is no better use for this spectrum than this kind of service, and we believe people eventually will recognize that. We've received support from many groups--public interest groups, family groups, education. And we got a very nice letter from the PTA in support of this. Rural carriers support it because they have been disenfranchised by data roaming agreements ... Fundamentally, no one would argue there is adequate competition in the broadband market. It's embarrassing that we have all of these people on dial up, and if no one solves this problem in the private sector, you are going to get direct government intervention."--Lynnette