FCC ponders auction for free wireless service

The Federal Communications Commission is considering a new plan that would require winners of an upcoming spectrum auction to provide free wireless Internet services.

The FCC could soon vote on a plan to auction off 25 megahertz of spectrum in the 2155MHz band of spectrum. As part of its plan, the commission would require the winner of those licenses to provide some free wireless Internet service.

The FCC sees the plan as a way to provide broadband Internet service to millions of Americans who either can't afford or don't want to pay for high-speed Internet access. Few details are known about what exactly the FCC is proposing, but word has it that it's similar to a plan proposed by M2Z Networks in 2006.

Under that plan, the FCC would give the company access to spectrum for free. The company would build the network and fund the service through advertising. As part of the proposal, M2Z planned to give the FCC 5 percent of its gross revenue from the service.

But the FCC didn't like that proposal, especially the part about giving spectrum away for free. So it's come up with its own proposal. Instead of giving away free spectrum licenses, it will auction the spectrum to the highest bidder and require the winning bidder to offer service on some its spectrum for free. The FCC will also require that the free service have content filtering in place to ensure that minors are not able to access adult Web sites.

Wireless service providers have traditionally opposed any stipulations imposed on wireless spectrum auctions. And the CTIA, the trade organization representing the industry, has already filed comments with the commission urging it not to put requirements on the spectrum.

"The commission should not require licensees to meet specific conditions, such as pricing plans, minimum data rates or content filtering," the CTIA wrote in a filing.

While the FCC's plan might be well-intended, I think it's unlikely that any company would spend the millions or even billions of dollars necessary to buy the spectrum, especially considering that it will take even more money to build and operate the network.

The advertising supported model sounds good on paper. But so far, it hasn't been proven to work. In fact, the failed citywide Wi-Fi projects all over the country have already proven that free wireless services don't work. EarthLink planned to only give some of its service away for free in some cities like San Francisco. But it offered "cheap" broadband in other cities. MetroFi built its whole business model on offering free Wi-Fi supported by advertising revenue.

EarthLink has since canceled plans to build its San Francisco network and now its dismantling networks in other cities, such as Philadelphia and New Orleans. Meanwhile, MetroFi is also looking for a way out of its citywide Wi-Fi business.

These companies weren't able to make the free model or even the inexpensive broadband model work, because networks are expensive to build and maintain. And unlike the bidders in this auction, these companies didn't have to pay for the spectrum they used to build the networks. I can't imagine many companies willing to make that kind of investment if they're required to offer even some of their service for free.

For this reason, I think it would be difficult for the FCC to find a bidder willing to take on the stipulations. This is exactly what happened in the most recent 700MHz spectrum auction. The FCC required bidders on the "D Block" of licenses to set aside a portion of that spectrum for public safety use. The only company even interested in the spectrum went out of business before the auction began, because it was unable to secure the necessary funding. In the end, the minimum bid on these licenses was never met, and the FCC is still trying to figure out how to rewrite the rules to attract bidders.

That said, the FCC has had some success in setting rules for new spectrum auctions. In the same 700MHz spectrum auction, the FCC required the winner of the C-Block licenses to build a network using this spectrum that is open to all devices and applications. Verizon Communications ended up paying $4.6 billion for the spectrum.

So in all fairness, the FCC may succeed in this endeavor. But ultimately, the success of this new plan will come down to whether or not the winning bidder will be able to come up with a business model that actually allows companies bidding on this spectrum to make money.