Will a spectrum auction requiring free broadband services work?

FCC Chairman Kevin Martin has scheduled a vote on rules for another spectrum auction that would include 25 megahertz in the 2155 MHz to 2180 MHz band and would require the winning bidder to offer free broadband service under a strict buildout schedule. (See story No. 1)

The proposal is based on a number of proposals entities have floated over the years. Namely M2Z networks back in 2006 asked the FCC for free spectrum in that band to offer free broadband for the masses. The FCC subsequently denied all of the plans because they go against a principle established decades ago that the commission needs to grant spectrum via an auction.

The rules the FCC is looking at would stipulate a free service tier and would require the winning bidder to reach 50 percent of the population in four years and 95 percent of the population by the end of the license term.

How would the operator create a business plan out of these requirements? We can guess from M2Z's previous proposal. The company was planning to receive a return on its investment by offering access to the network on a wholesale basis. The company had also planned to offer a premium broadband service that would be faster than current DSL and cable speeds for which it would charge between $20 and $30 per month.

But that proposal was two years ago, when there wasn't the threat of Clearwire's WiMAX, new 4G networks in 2010 and failed muni-WiFi business models. Plus M2Z had proposed that the spectrum be free.

So the question is, would such an auction generate any interest? The intentions of such a network are noble, but it seems to be a risky business proposition given the fact that network operators build out their networks according to demand for their services. This could very well end up being another D-block auction if the FCC doesn't craft its rules carefully and offer a clear money-making path.--Lynnette