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M2Z Needs FCC Win and $5 Billion

Next Thursday, the Federal Communications Commission will vote on the creation of a nationwide filtered wireless broadband network (unless politics cause the issue to be struck from the agenda). The most likely beneficiary if the FCC approves the plan is a Kleiner-backed startup called M2Z Networks, which had proposed a plan very similar to the one the FCC is scheduled to vote on.

The plan would be to auction off spectrum in the AWS-3 and allocate it for two wireless broadband networks. One would be a free network delivering speeds of 768 kbps to 95 percent of the country with some kind of content filter, and the other would be a faster paid network that M2Z envisions selling access to for $20 to $30 a month. John Muleta, CEO and founder of M2Z Networks, chatted with me earlier this week to defend the low speeds of such a network and to talk about the realities of building out such a network.

When pressed about critics who claim that 768 kbps is barely broadband today and won’t be able to surf the web by the time the full network is deployed (that could take up to 10 years, although 50 percent of the population must be covered in four years), Muleta points out that this service is still better than nothing and it would be free. The very act of providing a free, inferior service would still put pricing pressure on those providing broadband data, he argues. He may be right, but if a majority of users gravitate toward free, slow broadband,  online applications and services may have to pander to the slowest common denominator — potentially hurting innovation.

As for a buildout, Muleta said he imagines network costs will be about $3-5 billion, which is a higher number than the $2-3 billion estimate the company offered back in 2007. M2Z will also have to convince chipmakers to create a WiMAX chip in the spectrum band and make sure low-cost devices will be available to access the network — something that can make or break the success of a network. The network would be open on both the free and the paid side, according to Muleta, and will likely be more accessible than Verizon’s open network created as part of the 700 MHz spectrum auction this year. However, with the FCC approving the white spaces broadband, which could offer higher speeds and cheap unfiltered service, I’m not sure this proposal makes the best use of the available spectrum.

10 Responses to “M2Z Needs FCC Win and $5 Billion”

  1. Jesse Kopelman

    Nationwide network that is at least ostensibly competitive with what the current providers will have means at least 20,000 macro base-stations. Average deployment cost will be about $300k. 20,000 X $300k = $6B. So, I’d say Muleta is still overly optimistic, but at least he’s approaching the realm of plausibility.

  2. Stacey Higginbotham

    Shai, I also wonder about people buying a $200 device (but if enough do, it will get cheaper), and I’m giving a big ewwwww for the Inq headline :)

    Tom it is slow, but if enough people use it then web developers may have little choice but to pander to it. However, the device pickup will be an issue. With such a reverse incentive it’s possible that $200 devices are part of the plan, thus limiting the number of people on the network. Gonna take off the tin foil hat now.

  3. As Shai says, I’m against this. As others have stated,although people might use a free service, it’s much more doubtful that they’ll buy a $200 device to use it. 768k won’t be a usable option just a couple of years from now just as dialup doesn’t work for surfing today even though it used to. websites are made for the top three-quarters of the market. Tomorrow’s equivalents of flash and AJAX won’t work on connections which are this slow.

    What’s worse it that the provider is incented to have the free slow-speed network fail. The fine print says they only have to devote up to a quarter of the bandwidth to the free network IF there is demand which requires this much resource. If noone or almost noone uses the free network, the provider (M2Z for example) gets the spectrum free to use for their commercial service.

    This is a perverse incentive to say the least.

  4. Tom Evslin had a great post on this last week: “Free, Slow, Censored Internet – A Bad Idea”

    His main concern, like yours, is that 768kpbs is not enough for modern internet. I disagree there: Giving any kind of always-on broadband to someone who previously had none makes a huge difference. Access to email, IM, Craigslist, Google, Facebook, Linked-In, Ebay, and government services can change the life of those on the margins of society. (So I’m agreeing with John Daly somewhat.)

    But I do have several other big concerns with M2Z.

    1) M2Z is trying to draw the analogy to analog TV, i.e. it’s free, and family-friendly. I might accept the argument if they were pitching this as non-profit, similar to PBS, but M2Z is a business, with VC backers that want a return on their investment. The bigger flaw with that analogy is that the TV spectrum is granted to regional TV stations, rather than a single cross-country entity. A local station might go bankrupt, but the impact is minimal. M2Z wants the FCC to make a big gamble on a single company.

    2) The risk is compounded because this is an unproven business model. Are people willing to buy a $200 device for unlimited wireless broadband? Maybe. But it’s far from a sure thing. Especially when their alternative – in urban areas, at least — is low-end DSL at $15/mo.

    3) Their ad supported model (as I read it last September) is sketchy: it will use “…local geo-tagging for highly relevant search results. Even if you assume that they can do a better job of local results than, say, Google, why would I use their search engine rather than my current one? Are they going to lock me in somehow? Haven’t we learned our lessons about walled gardens?

    4) Finally there’s the usual concerns with censorship – who decides what is decent?

    I blogged about M2Z when their CEO was appearing on CNN and other news shows trying to gain public support. He was is playing the angle that their proposal was being defeated through undue influence of “Big Business” ISPs who don’t want a free alternative. I don’t really buy that angle. Overall, I’m just not left with a good feeling about this.
    (with video)

    BTW, the best headline on this goes to The Inquirier which referring to both the free and censored nature of the service, sums thusly: “Internet without the money shot” :-)

  5. John Daly

    I’ll sidestep the debate regarding the potential impact of this initiative on innovation, or whether this is the best practical use of the spectrum.

    Will people use free connectivity with constraints (speed, filtering)? Probably. As a founder of Junxion (early US market leader in flexible WWAN routers) I was repeatedly surprised to find that the majority of riders of several public transit agencies (Riverside, King County/Seattle, Capital Metro/Austin, Alameda County/East SFO, etc.) as well as private/corporate transit (Google, Yahoo, Microsoft, etc) were understanding – indeed they were grateful – wrt no-cost WiFi access with obvious constraints. Early on these deployments used EDGE or 1xRTT/EVDO Rev 0, often shared among 15-20+ riders at a time. Ultimately, for a surprising number of Junxion public/private transit customers the trade-off between deploying what was available “today” at a reasonable cost to everyone trumped more sophisticated/costly alternatives.

    When it’s free, quality of service expectations can be malleable.