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Startup banking on free broadband

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Posted: Monday, December 15, 2008 6:41 pm | Updated: 11:50 pm, Fri Oct 7, 2011.

WASHINGTON - For the past three years, a startup called M2Z Networks has been figuring out a way to blanket the nation with a free wireless broadband network to ensure all Americans have access to basic high-speed Internet connections.

Along the way, the company has found support in powerful corners of Silicon Valley and Washington. It has attracted funding from several of Silicon Valley’s top venture capital firms. And it has captured the interest of Kevin Martin, the chairman of the Federal Communications Commission, who is backing a plan essentially mirroring the M2Z proposal as a way to promote universal broadband.

Finally, this month, the company was nearing a breakthrough. Martin pushed for a full FCC vote on his plan, which would set the rules for auctioning off the slice of wireless spectrum that M2Z wants to put its ideas into action. But opposition forces gathered steam, deferring M2Z’s dreams for now.

Led by T-Mobile USA, the nation’s wireless carriers have been lobbying to defeat Martin’s proposal, which they say would interfere with their own services. The Bush administration wasn’t happy either: It urged the FCC not to proceed with an auction that would favor one company’s business model. And some key Democrats on Capitol Hill called on the agency to hold off on controversial items — which would include the M2Z plan — until the Obama administration takes over.

Facing such objections, Martin canceled the Thursday vote on the free broadband idea. The proposal remains on circulation at the FCC, and M2Z is suing the agency to gain access to the slices of the airwaves that it needs. But now it looks like the company will have to wait until next year to know its fate.

Although President-elect Barack Obama has not taken an official position on M2Z, he has said that wireless services could be one important channel for bringing broadband to all corners of the country. And that could be good news for M2Z.

What’s at stake, insists M2Z co-founder Milo Medin, is a “lifeline” wireless network that would provide basic connections for people who can’t afford premium services offered by big phone and cable companies or those who live where those services are unavailable.

“We Americans are creating a two-tier digital society,” Medin said. “If you’re not connected today, you’re really at a disadvantage. But we can remove barriers that isolate people from the digital domain.”

It’s not clear exactly how many Americans have no access to broadband. According to a survey conducted in August by the Pew Internet & American Life Project, 57 percent of Americans subscribe to broadband at home. More people could get it, but choose not to buy it or can’t afford it.

One major advantage of wireless technology is that it could bring broadband to rural areas that the big phone and cable companies have abandoned as too sparsely populated to justify the necessary network investments. That’s because it costs less to blanket large areas with a wireless signal than to lay down wires.

Martin has proposed that the FCC auction a large chunk of airwaves to a company that would set aside 25 percent of the capacity for a free broadband service. Under his plan, the winning bidder would have to make that service available to 50 percent of the population within four years and 95 percent of the population within 10 years — or risk losing any remaining spectrum not yet being used.

The concept, explained John Muleta, M2Z’s other co-founder, is modeled after over-the-air television, which is available for free to anyone with a TV set whether or not they subscribe to cable or another premium video service.

Founded in 2005, M2Z is a partnership between two broadband veterans.

Muleta, 43, has done two tours of duty at the FCC. Between 1994 and 1998, he worked in the section of the agency that regulates landline phone companies. And between 2003 and 2005, he headed the wireless telecommunications bureau, where he oversaw policies on consumer wireless services and public safety radio networks.

In between, Muleta held executive positions at PSINet, an early broadband provider that resold high-speed connections to corporate customers using facilities owned by the big phone companies.

Medin, 44, was co-founder and chief technology officer of another broadband pioneer — (At)Home, which partnered with some of the nation’s biggest cable operators to create the cable Internet market. Before jumping to (At)Home, Medin was a project manager at the NASA Ames Research Center in Mountain View, Calif., where he helped manage some of the early government networks that evolved into today’s Internet.

Although Muleta and Medin are based on opposite coasts — with Muleta in the Virginia suburbs of Washington, D.C., and Medin in Silicon Valley — they share a common experience. Both worked at early broadband companies that relied on established telecommunications giants to provide the so-called “last mile” of network infrastructure needed to reach customers. And both of their companies landed in bankruptcy when their relationships with the phone and cable companies became unworkable.

“The lesson learned is that you have to have the last mile in order to control your own destiny,” Muleta said. “You need to have the direct relationship with the customer. Otherwise the company you rely on for that last mile will only let you survive only as long as it is in their interest.”

And that is where M2Z — which stands for “move transport to zero” and is also a play on the names of the founders’ children — comes in. The company would build its own nationwide wireless network to connect consumers to the Internet, bypassing phone and cable lines.

Muleta estimates it would cost $2 billion to $3 billion over a decade — plus the cost of the spectrum to be auctioned off — to build that network using new “spectrally efficient” technologies. Skeptics have questioned whether M2Z will be able to raise the money it needs — particularly in the current credit environment. The company has the backing of several prominent venture capital firms, including Kleiner Perkins Caufield & Byers, although it won’t say how much funding it has amassed.

M2Z plans to deliver free wireless access with downstream speeds of 768 kilobits per second — roughly on par with a basic digital subscriber line (DSL) connection. To make money, M2Z would also offer a premium service with downstream speeds of 3 to 6 megabits per second for about $25 per month.

In addition, because the company’s wireless base stations will know where its users are located, M2Z hopes to partner with search engines, Web portals and online advertising networks to target local ads.

One contentious component of M2Z’s plan is its intention to offer a family-friendly network that would filter Web sites inappropriate for children — a proposal that has raised concerns among free speech advocates.

M2Z has also run into fierce resistance from the wireless industry. As Medin sees it, the industry is “really nervous about an outsider coming in and wrecking the place” — upending a lucrative market for mobile services with free broadband.

Officially, at least, much of the opposition is on technical grounds, especially from Deutsche Telekom’s T-Mobile. In 2006, T-Mobile spent $4.2 billion for a large chunk of spectrum — including airwaves right next to the frequencies M2Z is eyeing — in order to build its own “third-generation” wireless broadband network. T-Mobile argues that M2Z’s proposal would create interference for T-Mobile’s customers.

Although a report by FCC engineers in October concluded that technical safeguards would prevent interference with other wireless services, T-Mobile insists there will be problems in restaurants, airports and other high-density areas where people congregate.

Chris Guttman-McCabe, vice president of regulatory affairs for CTIA-The Wireless Association, the industry’s leading trade group, is also concerned that the FCC would essentially design an auction for a valuable chunk of airwaves around one company’s business plan. As a result, he said, the auction would not attract nearly as many bidders — and would not raise nearly as much money for the Treasury — as a true, open competition.

Martin rejects this argument. The goal of the spectrum auction, he said, should not be just to raise as much money as possible for the government, but also to bring broadband to all Americans.

Despite falling just short of an FCC vote on the plan, Muleta insists M2Z will continue its campaign to gain access to the spectrum it needs — before and after the Obama administration takes over.

“I’m optimistic,” he said, “because this idea that we need to change the way the broadband market is structured has received serious consideration.”

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