Business

Cell Trade Group Says FCC Plan Doomed to Fail

In a scathing filing with the U.S. Federal Communications Commission on Thursday, an association representing mobile operators criticized the agency's plan to auction spectrum that would require the winner to offer free wireless Internet services.

"The proposal upends two decades of spectrum policy in favor of a specially tailored auction designed to advance the particular business model of a single company. Moreover, this business plan -- including free broadband -- has a track record of failure," CTIA wrote in the filing.

The commissioners plan to vote on June 12 on the proposal to auction a 25MHz piece of spectrum in the 2155MHz band and require the winner to use a specified amount of spectrum to deliver free wireless Internet access.

The FCC developed the plan based on proposals from several companies including M2Z Networks, Commnet Wireless, NextWave Broadband and others. M2Z in 2006 proposed that the FCC give the company the spectrum so that it could offer free wireless Internet access to users. The company planned to fund the network through advertising and said that it would give the FCC 5 percent of its gross revenue. The FCC's current proposal would simply auction the spectrum to the highest bidder and require the free services.

In its comments to the FCC about the plan, the CTIA said that the commission would be better off supporting its typical so-called flexible-use policy, which allows the spectrum winner to use essentially any business model and technology. The CTIA pointed to several historical examples of instances where the FCC adopted special rules, only to find that the company that initially proposed the idea behind the rule didn't end up bidding in the auction.

That happened in the recent 700MHz auction when the FCC made rules for a certain segment of the spectrum along the lines of the business plan built by Frontline, which ultimately did not enter the auction. No one won the spectrum carrying the special rules.

The CTIA also pointed to the history of companies that have tried to offer free Internet access in the past. "The Commission should take note that those businesses that have tried to provide free services like the broadband service under consideration here have failed in the marketplace," the CTIA wrote. It pointed to some Internet service providers that once offered advertiser supported dial-up Internet access, such as NetZero and Juno, but ultimately failed. It also named many of the recent failures of free municipal Wi-Fi networks.

"In light of this history, on what basis does the Commission conclude that the business model it plans to mandate is, in fact, viable on a national scale?" the CTIA wrote.

The FCC has said that it hopes its free Internet plan will spur innovation in broadband and offer users more choice for Internet access. The U.S. has fallen behind many regions of the world in terms of broadband penetration and throughput speeds.

The FCC first sought comment on its proposal last September and since then many companies have filed their opinions on the idea. Existing operators are typically opposed to the idea since it means that their services would have to compete with a free offering.

If the agency approves the plan during its June 12 meeting, the auction could happen in six months at the soonest.

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