M2Z's free wireless service aims to disrupt a telco cash cow

Larry Borsato — Thu, 16 Oct 2008 08:29:03 -0400

M2Z wants to give you free wireless access. The Kleiner Perkins-backed company -- whose name stands for “move the cost of data transport to zero" -- plans to use underutilized spectrum in the 2155 to 2175 MHz range to provide nationwide ad-supported content-filtered (i.e. porn-free) 384 kbps free wireless access, as well as a $20-$30 per month 3 Mbps service.

"Free" is not a new business model for ISPs. Back in 2000 companies, most notably NetZero, provided free ad-supported dialup Internet access. That model died with the dotcom crash in 2000, primarily because they did not have an obvious path to profitability. M2Z aims to avoid that trap by offering paid service as well. In M2Z's model they are selling geo-tagging information -- basically zipcodes -- that search engines can use to provide locally relevant ads.

Success for M2Z turns on their ability to avoid a spectrum auction. How? Management is instead offering to pay the government 5% of annual sales. They expect to be able to build the nationwide network for as little as $1 billion. As a simple cost comparison, last year New York City alone committed $500 million for a similar network. And the last spectrum auction alone brought in almost $20 billion -- upfront costs that must be covered before these services see a dollar of profit.

Founder Milo Medin, formerly founder of @Home, also believes that in addition to the low infrastructure costs, a localized location-based advertising model will attract a new class of local businesses who don’t advertise currently on the Internet.

Their plan was initially opposed by the FCC, who have created their own proposal for Advanced Wireless Services [pdf] using the same spectrum, which includes an auction. Incumbent operators have claimed that the service would interfere with services they provide. This week the FCC published results that showed little concern over these claims, and they seem poised to move ahead on the proposal.

Incumbent carriers are opposed to M2Z because it hits them in a profitable spot. With broadband costs as high as $50 per month, and the advent of tiered pricing, Internet access is a cash cow for them, and the service is unregulated, as opposed to services such as local phone service, where prices and tariffs are regulated by the FCC. With broadband growth slowing, some carriers are even raising their prices. They have no interest in competition from a free service, and even less interest in offering one.

Carriers are also aware that there is substantial growth in mobile broadband on their networks. The number of computers using mobile broadband technology to access the Internet grew by 154 percent in Q4 2007 versus the same period in 2006. Data spending reached $8.2 billion for the second quarter of 2008, or about 21 percent of the total wireless services revenue. A nationwide wireless network also allows the possibility of certain mobile devices -- including iPhones -- connecting via Wi-Fi and taking some revenue away from carriers who charge for 3G access.

M2Z has been pushing its proposal since 2006. Now it seems they have won the FCC over on the concept, if not the implementation. Though this might be the wrong time to roll out a business model partially based on advertising revenue, the models offered by existing ISPs seem to have limited success in terms of increasing US broadband penetration. Perhaps it is time to try a new, or at least revised, business model. And "free" certainly has an attractive ring to it these days.

Larry Borsato has been a software developer, marketer, consultant, public speaker, and entrepreneur, among other things. For more of his unpredictable, yet often entertaining thoughts you can read his blog at larryborsato.com.

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M2Z's free wireless service aims to disrupt a telco cash cow

Larry Borsato — Thu, 16 Oct 2008 08:29:03 -0400

More news, commentary, and predictions from The Industry Standard:

Review: Hands on with HTC's Google phone
Prediction: Zune Phone announced by end of 2008?
Analysis: Intel continues the WiMAX/LTE war of words
Special Feature: The iPhone naysayers, one year later