News : FCC to mull free Internet plan at December meeting

By Kim Dixon

WASHINGTON (Reuters) - The U.S. Federal Communications Commission is likely to consider a plan this month to auction public airwaves with a mandate that the winning bidder set aside some for free Internet nationwide, a proposal staunchly opposed by the cell phone industry.

The plan is championed by FCC Chairman Kevin Martin, a Republican whose time as chairman is waning as the Obama administration prepares takes office in January. Martin is expected to announce on Tuesday that his proposal will be considered at the commission's December 18 meeting.

It faces several hurdles. The cell phone industry, for example, is arguing that an FCC requirement for free Internet is not a feasible business model for most companies.

Also lining up against Martin's proposal are free speech advocates, who don't like a provision that would require the winning bidder to block pornography and other offensive content from the free Internet access. Another concern is whether investors are willing to create the needed infrastructure for free Internet access in the recession-hit economy.

"Everybody likes the concept -- free broadband, free access to the Internet -- but in practice, the way the model is set up, it may present problems," said Ben Scott, policy director of advocacy group Free Press.

T-Mobile, a unit of Deutsche Telekom AG, contends that the free Internet component of the proposal would lead to interference with the adjacent spectrum, for which it paid $4.2 billion. The FCC's office of engineering and technology has said there would be no significant interference with other airwaves.

Martin's proposal is similar to one offered by startup M2Z Networks, a group backed by investors including venture capital firm Kleiner Perkins Caufield & Byers.

M2Z President John Muleta envisions consumers buying a router for free Internet access at midlevel DSL speed and paying a fee to upgrade to faster service. A lack of competition and rising prices for Internet services are creating consumer demand for cheaper service, he said.

"It is a difficult time in the general marketplace, but this is not the financial services sector," Muleta said. "This is not about subprime loans."

AD-SUPPORTED MODEL

M2Z, which plans to bid if the FCC approves the auction plan, said its business model would use advertising to help fund the free Internet -- a revenue scheme not shared by most of the cell phone industry.

"I don't know of any other major players" that would bid with such an approach, said Sascha Meinrath, research director at the New America Foundation. "For a new player, you basically have to have all your capital up front."

For the FCC to approve the auction proposal, Chairman Martin must persuade the commission's two Democrats, who have supported the proposal's concept, to side with him.

It is unclear whether the Democrats will back the proposal, though, especially since they will gain more authority when President-elect Barack Obama takes office, which will give them a three-vote majority on the five-member FCC.

The two other Republican members of the commission are likely to oppose the proposal, according to analysts.

Also on Tuesday, AT&T Inc, Google Inc, unions and public interest groups called for a national broadband strategy offering affordable high-speed Internet to all homes and businesses that want it.

Members of the group have often been foes on telecom issues in the past, but joined together to urge President-elect Barack Obama to spur investment in high-speed broadband by offering tax incentives, grants and low-cost loans. The items should be included in a multibillion-dollar stimulus package Obama has asked Congress to have ready for his signature when he takes office, according to the group.

Such investments would create a multiplier effect in the economy, said Rick Whitt, a Google lawyer. "These so-called innovation spillovers hold the promise to get our economy moving again," he said.

Google CEO Eric Schmidt is among Obama's most prominent supporters in the U.S. business community.

The United States ranks far below many industrialized nations in access and affordability of high-speed Internet, according the Organization of Economic Cooperation and Development.

(Reporting by Kim Dixon; Editing by Lisa Von Ahn)