Politics

A Startup's Alternative Spectrum Plan — continued

The money plan
How would the company have recouped its billions in investments if the proposal had been accepted—or if it somehow still gets control of the spectrum?

Users of the free service would have to opt in to a scheme in which IP addresses are matched to zip codes. M2Z would deliver the user's zip code to search engines such as Google and Yahoo along with a search request so the search engine company could deliver local advertising.

"If you're looking for pizza, in Arlington, Virginia, say, the pizza shops there can bid for key words so they appear at or near the top of the search list," Muleta explains.

Everybody wins by this, he says. Users get more useful information when they're searching for local suppliers. Advertisers can address customers that are already interested in their products and services. And search companies can offer new advertising services.

"[Text search advertising] is a growth industry," Muleta points out, "and everybody has been trying to figure out how to make local search relevant. We think that having lots of users with their systems tuned to the M2Z network and us enabling our partners to do search text advertising on a local basis [is the way to do it]—and that would pay for part of the [free M2Z] service."

The company would also generate revenue from premium services. But it would not in all cases sell directly to users.

"We believe the premium service is something that local ISPs, satellite companies, national ISPs, rural phone companies, rural cable companies can use to extend the reach of their networks and upgrade their service levels," Muleta says. "They would become natural partners for us."

The business model hinges in part on M2Z network adapters being readily and cheaply available at retail. That will mean finding manufacturing partners committed enough to invest in ramping up to build the products in volume.

The company is "engaged in discussions" with potential partners, Muleta says, but no manufacturer will commit until the issue of whether and under what circumstances the spectrum will be available to M2Z has been settled. And barring an early and favorable decision from the courts, that could take awhile.

Muleta argues that by dismissing the M2Z application the FCC was flagrantly disregarding its Congressionally mandated public mission to work for the public good.

He claims the commission received 2,000 letters of support for its proposal from organizations such as police departments and the National Parent Teacher Association, which the regulator did not acknowledge in its public statements on the application.

He also claims financial analyses the company submitted with the application showed that public benefits would amount to between $18 and $32 billion in net present value (the present value of net cash flows from the project over its life). Each year of delay will cost a few billions in lost value, he says.

"None of these things was cited [in the FCC decision] and we think that's the definition of 'arbitrary and capricious,' which is the legal standard by which FCC commissions are reviewed," Muleta says. "The commission basically ignored the data."

He has no doubt the reason for this is that incumbents brought pressure to bear on the regulator. Their submissions to the FCC urging a full rule-making were "basically designed to forestall competition," Muleta charges.

The future remains
Now that the spectrum appears headed for a rule-making and probably auction, will M2Z stay in the hunt?

Absolutely, Muleta says. He points out, though, that since M2Z submitted its proposal, five "copy cats" have come forward with similar business plans. So it won't just be the big guns it has to contend with in an auction.

M2Z will certainly participate if the basic principles of its original proposal are retained in the new rules—nationwide coverage, free access for first responders, wholesale network provision for premium services and royalty-free network adapter designs.

The company's investors are in it for the long haul, Muleta insists.

"They're visionaries," he says. "They believe in the notion of free broadband wireless. They know that dealing with government can be a long, hard road, and that it might not necessarily always be rational. But they're willing to help us get there to the end of the process."

The investors are Kleiner, Perkins, Caufield and Byers, which funded both Google and Amazon, Redpoint Ventures, backers of TiVO and MySpace, and Charles River Ventures, which helped bankroll Excite, GOTV and other internet ventures.

"These are companies that are phenomenal for the wealth they've created and the innovation they've helped bring to market," Muleta says.

But if the process lasts seven years? And if at the end of it they have to pony up mega millions for spectrum licenses? They would have to be visionaries indeed.

—End

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