Politics

A Startup's Alternative Spectrum Plan

When this company went before the FCC with an alternative way to manage spectrum, the incumbents fought back.

by Gerry Blackwell [December 31, 2007]

It's easy enough to see why established players in the broadband internet business wanted to block M2Z Networks Inc., the wireless broadband startup that proposed a novel and contentious way to exploit unused radio spectrum in the 2155-2175 MHz band.

If the FCC had allowed M2Z to use the spectrum to create a nationwide wireless broadband network providing free 384 Kbps and paid 3 Mbps access services, it would be a formidable competitor for the likes of AT&T and Verizon.

"Our vision," says M2Z founder and CEO John Muleta, "is to make available a service that has the same dynamics as television, with a free over-the-air component, and then subscription-based, higher-speed, value-added services."

The company is being bankrolled by three top high-tech venture capital firms.

It's also easy to see why independent ISPs supported M2Z—or should have if they didn't—because the company was proposing a completely open network that would allow ISPs to offer branded premium broadband services using the M2Z network facilities.

Critics and regulators
It's a bold strategy with the potential to remake the market. No wonder incumbents felt threatened. According to Muleta, AT&T, Verizon, and others leaned heavily on the federal regulator to turn down his company's May 2006 license application.

That proposal asked the FCC to grant M2Z rights to use the spectrum without going through the usual rule-making and auction process. In return, the company dangled an attractive package of public benefits, including revenue sharing with the government.

Critics argued that M2Z was asking for special treatment, that it was simply trying to avoid paying spectrum license fees which have in the recent past run to hundreds of millions or even billions of dollars.

"We never wanted to avoid paying for spectrum," Muleta insists. If the FCC had taken 5 percent of revenues from winning bidders in spectrum auctions between 1993 and 2005 instead of the fees it received, it would have cleared billions more than it did.

Some critics also suggested Muleta had an unfair advantage because he once worked for the FCC. He only worked for the commission for two years, though, Muleta points out, and already had strong credentials as an Internet entrepreneur.

Those opposed to the application asked the regulator to initiate a formal rule-making so everyone in the industry could have a crack at the spectrum.

Muleta argues that incumbents like AT&T and Verizon, which led the opposition, don't need the spectrum, can't use it, and only want it to prevent a new competitor, M2Z, from entering the market.

The incumbents won at least an interim victory when the FCC rejected the M2Z proposal in August 2007. It dismissed the application without prejudice, meaning it didn't comment one way or the other on its merits. The commission also announced it would begin a rule-making.

Earlier, in May, M2Z filed a civil suit against the regulator to force its hand after the FCC failed to meet a one-year deadline for responding to the application. That case remains before the courts.

The two processes, the litigation and the FCC rule-making, will now proceed in tandem, Muleta says. He believes little substantive movement is likely in either before September 2008, however.

Fallow spectrum
The frustrating thing for M2Z is that before it made its proposal, the FCC had no plan for the spectrum, and nobody else had expressed interest in it. The company's entire approach was designed to short-circuit the onerous rule-making and auction process.

"We said, 'Here's our idea. If you allow us to use the spectrum, we're willing to share revenue with you as a reward for putting the spectrum into the marketplace sooner rather than later,'" Muleta says.

The revenue sharing scheme—M2Z would deliver 5 percent annually to the government in lieu of up-front fees—was just one of several features of the proposal that were seemingly in the public interest, and which the company no doubt hoped would make it impossible for the FCC to turn it down.

The application also included a pledge to build, at a cost of $2 to $3 billion in private sector money, a nationwide network that could deliver broadband internet service to 95 percent of the population.

The service would be free for access speeds equivalent to entry-level DSL service, and cost $20 to $30 a month for speeds comparable to near top-level cable modem service. Police, fire departments and other first responders would get free access.

The network could deliver these speeds without need of an external antenna, with an integrated network interface card and antenna similar to current Wi-Fi receivers. Users could access the service while mobile, though not while traveling at high speed in a car.

M2Z was also offering to provide royalty-free reference designs for user equipment to encourage manufacturers to make the network interface products in volume and at low prices.

"We think this is a way to put the asset [the spectrum] to work," Muleta says of the original application. "And we still think it's a good proposal."

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