A Federal Communications Commission proposal to auction off spectrum with the requirement that the winner offer a free tier of broadband service is a business model doomed to failure, according to the principal trade group for the nation's wireless carriers.
In a June 5 filing with the FCC, the CTIA said, "Prior FCC efforts to craft an auction around a single business plan have failed-and we expect this will be no exception."
In May, FCC Chairman Kevin Martin proposed a new spectrum auction in the 2155MHz to 2180MHz advanced wireless services band. The auction would require the winning bidder to offer free broadband service to 50 percent of the country within 10 years.
The idea is a variation of a plan submitted by startup M2Z Networks, which wants to offer a wireless network with a free, family-friendly broadband tier. The network would be supported through advertising and paid tiers offering faster service. M2Z asked the FCC to give M2Z the spectrum in return for 5 percent of the profits.
"History has proven that prescriptive auction regulation ultimately undermines the public interest, rarely achieves its advertised benefits and is a poor substitute for allowing the marketplace to function freely," the CTIA said in the FCC filing. "The public interest is best advanced by the Commission's long-standing flexible-use spectrum policy, which provides spectrum licensees the freedom to innovate and respond to consumer demands."
The CTIA pointed to the recent 700MHz auction as an example of the FCC pushing a business model on the market. Based on a public/private proposal by Frontline Wireless, the FCC failed to receive the minimum bid level for the D block of spectrum dedicated to public safety.
"If anything, the proposed order threatens to skew the market as competitors ... would be required to contend with a licensee that obtained spectrum at a reduced price, in effect offering subsidized broadband for free," the CTIA said. "The proposal affects all broadband providers, especially those that just acquired spectrum at market-based rates."
The wireless association also noted that previous business plans to offer advertising-supported free networks have been less than successful. NetZero, Juno Online Services, Spinway, Freei and Bluelight were offered as examples. Spinway, Freei and BlueLight all went bankrupt and were acquired by United Online. NetZero and Juno, also owned by United Online, evolved away from free service.
"These early providers of free dial-up Internet services quickly discovered that they could not make these business plans profitable," the CTIA said.