Posted 03:45 EST, 27, Oct 2008 - TheDeal.com
It's the auction that could bring free Internet to the masses.
The Federal Communications Commission has proposed auctioning off a slice of unused spectrum known as AWS-3, or "advanced wireless services 3," under the requirements that 50% of the population receives free Internet in four years and 95% in the next decade.
Sources place the price of this spectrum in the $250 million and $500 million neighborhood, saying that if it weren't for the current economic mess, the technology would fetch billions.
The auction, which was proposed by FCC Chairman Kevin Martin and is now being weighed by the agency's four other commissioners, is projected to take place sometime next year. The five commissioners have to approve the measure, but no date for a vote has been set.
"We can't say at this point in time how the auction will be structured until rules are set forth after Commission approval," said Rob Kenny, an FCC spokesman.
Kenny added that the deal is currently not at a stage where a national license or regional license will be issued to the qualified bidders.
But the AWS-3 auction clearly has some telecom giants worried, particularly over whether the spectrum's signals will interrupt theirs.
"T-Mobile had an interference concern," according to John Muleta, CEO of M2Z Networks Inc., a likely bidder for the AWS-3.
AT&T Inc. made a similar argument, claiming that a functioning AWS-3 spectrum would conflict with the band it profits from, known as AWS-1.
Broadband Internet, still considered a new form of mass media, can be subject to the signal, quality and service distortions radio and television suffer from when traveling through airwaves.
But after wrestling with the issue for about five months, an FCC staff analysis found the distortion worries to be unwarranted.
"The FCC engineers' analysis clearly shows that the AWS-3 could provide free broadband to the public without causing significant interference on adjacent bands," Kenny said.
He noted that AWS-2 hadn't been addressed yet, but that 5 megahertz from that particular spectrum could be added to the AWS-3 to possibly minimize the potential interference that worries wireless carriers.
"The [engineering] department is focusing on AWS-3 to expand access to broadband services to all the United States," Kenny added.
Menlo Park, Calif.-based M2Z Network, funded by venture capitalists Kleiner Perkins Caufield & Byers, Charles River Ventures and Redpoint Ventures, believes that whoever wins the auction should offer free broadband service and generate profits through advertising, much like broadcast television.
"It's low-level, but it's broadband nonetheless," Muleta said.
He dismissed the interference argument as a delay tactic on the part of the two phone services that hope to stifle competition, noting that free Internet could cost them a lot of money in the long run.
"People want to protect the business they have," said Rob Enderle, principal analyst with the Silicon Valley consulting firm Enderle Group. "Carriers are not so excited."
On the other hand, the advent of AWS-3 could benefit giants Microsoft Corp. and Google Inc., who already focus on selling ad space as well as pay-for-use office applications, instant messaging and e-mail management.
"The more bandwidth that's free and available, the more services that can be sold on top of it," Enderle said, adding that the general tech market believes free Internet is a good thing.
He said Cisco Systems Inc. and Yahoo Inc. are likely bidders for the AWS-3 spectrum. Dell Inc. and Hewlett-Packard Co. are expected to compete as well, but with current market conditions, it's not clear if either company is willing to take the financial risk, Enderle added.
M2Z's Muleta said other companies have indicated they would be willing to take part in the bidding process, depending on their resources, including Commnet Wireless LLC, a subsidiary of Salem, Mass.-based Atlantic Tele-Network Inc.; Middletown, R.I.-based Towerstream Corp.; New York-based Speedus Corp.; and San Diego-based Nextwave Wireless Inc. All four are publicly traded.
M2Z Networks may be a privately owned midmarket company, but it, too, embraces the idea that making a free interactive medium available to a huge percentage of the population "generates a lot of goodwill and economic return for new content and application developers in Silicon Valley," Muleta wrote in an e-mail.
But while that goal is lofty, it might also be superfluous.
According to a report released by national nonprofit Connected Nation on Oct. 13, the primary barrier to computer ownership and home broadband adoption is not expense or lack of available broadband service — but rather, a perceived lack of need.
Of those surveyed in Kentucky, Ohio and Tennessee, 23% said the price of broadband was the main barrier to upgrading, while 44% simply believe they don't need it.
So is making the Internet more easily accessible just an excuse for targeting more consumers with pop-up ads and fast-loading movies?
Some argue it's not, citing distinct reasons why it will be useful. "The ability to work from home" is one reason free Internet will be important, said Laura Taylor, chief analyst for Connected Nation. "More businesses are leaning toward that."
Local governments have been advocating "telework" policies as a way to save time and money, Taylor said.
"It has been one of the key applications that drive people toward [a broadband] adoption," she said. "They need to work from home, and it's a big enough deal in terms of value."
Indeed, Connected Nation published a report on Feb. 21 that suggested that the U.S. could realize an economic impact of $134 billion annually by accelerating broadband availability and use across all states.
While AWS-3 might be a key ingredient in that broadband recipe, people remain uneasy.
Professor Thomas Hazlett, who teaches law and economics at George Mason University, insists that the government is not the institution consumers want policing competition among companies.
"You want the customers doing that," Hazlett said. "The government has embarked on an ill-conceived program to produce, through FCC planning, a broadband service which will not be produced according to competitive conditions in the market, but will be mandated from Washington."
He said there is an alternative. The government should make other spectrums available to the market, too, Hazlett explained, and then allow companies the freedom to make choices on what consumers want, and only then be rewarded if they provide it.