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Expanding Access

Expanding Access
With the United States lagging behind other industrialized nations in broadband Internet service, one public-minded firm proposes a radical plan.

By Ronald Roach

There’s no question that the United States lags behind most industrialized nations in consumer access to broadband Internet service. For many policy makers and activists, this shortfall marks the latest phase in the struggle to overcome the digital divide. As telephone and cable companies dominate the national broadband market, many consumer advocates and digital divide activists contend that they’ve created an industry that is too geographically restricted and expensive for low-income Americans.

“We have lagged behind in transforming to a broadband society,” says U.S. Sen. Daniel K. Inouye, D-Hawaii.

“Many consumers have no high-speed access to the Internet, and those who do often must choose from limited options. While alternative broadband platforms may be on the horizon, telephone and cable companies currently control 98 percent of the national broadband market,” Inouye wrote last month in The Hill, an independent Washington, D.C., political newspaper.

To remedy this lack of broadband affordability and availability, one start-up firm — with considerable backing from Silicon Valley companies — has proposed a radical plan to build a nationwide wireless system that would provide essentially free broadband access. Last May, M2Z Networks Inc. asked the Federal Communications Commission to grant it national rights to a
little-used slice of the broadband spectrum. Gaining control of the requested spectrum band would enable M2Z to build a nationwide system that provides wireless Internet access to anyone whose computer is equipped with an access card or access chip.

“We want to provide broadband access to those who the market hasn’t served well. It’s a civil rights issue as we see it,” says John Muleta, the company’s president.

Muleta and M2Z chairman Milo Medin are long-time veterans of the telecommunications industry. Formerly the head of the FCC’s wireless bureau, the multi-talented Muleta holds a bachelor’s degree in engineering and a JD/MBA. Medin, who is based in Menlo Park, Calif., founded the @Home broadband company.

M2Z’s proposal to control nationwide access of the 2155 to 2175 MHz range of the broadband spectrum has shaken up conventional thinking about how universal broadband service can be brought to consumers. As cellular phones and other technologies have been introduced in recent decades, the FCC has auctioned off spectrum space by geographical markets. The space goes to the highest bidder, bringing billions of dollars of revenue to the government. But if M2Z’s proposal is approved, the FCC would forgo auction revenues. The company, however, has offered to pay the U.S. Treasury 5 percent of its revenues from a premium service it plans along with the free service.

According to company officials, the free service will be entirely supported by advertising revenue.

While some nonprofit public interest organizations have applauded M2Z’s plans, it has also generated plenty of skepticism and opposition.

Among its opponents are conservative free market advocates, the wireless industry and even left-of-center public interest skeptics. Though the FCC has not yet indicated when its five commissioners will issue a ruling on the proposal, the commission launched a public comment period on Jan. 31.

Broadband By 2007
In March 2004, President George W. Bush called for the national adoption of universal, affordable broadband access by 2007. “It’s important that we stay on the cutting edge of technological change, and one way to do so is to have a bold plan for broadband,” the president told a gathering at the Expo New Mexico in Albuquerque.

“There’s roughly 114 million adults in the U.S. who are either unconnected to the Internet or are using slow speed dial-up connections to access the Internet,” Muleta says.

According to the Benton Foundation, a left-leaning public interest organization, the United States has fallen to 15th among industrialized nations in deploying broadband services.

Roughly 25 percent of American adults in rural areas have broadband in their homes, less than half of the rate in urban and suburban households. Less than 10 percent of families with incomes below $25,000 have a broadband connection, the foundation has reported.

“Universal access to broadband should be a national goal,” says Dr. Robert D. Atkinson, the president of the Information Technology and Innovation Foundation in Washington, D.C.

Muleta says much of the bottleneck in broadband access stems from how cable and telephone companies have selectively deployed their networks. The companies have created a “duopoly” that he says has given residents in many communities, particularly in rural areas, few choices when it comes to choosing broadband providers.

M2Z’s proposal promises to establish 95 percent national coverage within 10 years. The company has financial commitments from three major venture capital firms: Charles River Ventures, Kleiner Perkins Caufield & Byers and Redpoint Ventures. Muleta says M2Z currently has access to $400 million to build the network, pledged largely by the venture capital firms.

Bruce Sachs, a general partner of Charles River Ventures, says he believes the FCC will take the M2Z proposal seriously. The need for universal broadband is most evident from an educational standpoint, especially among low-income students, he says.

“A national broadband service would provide a basic entry point for students needing Internet access at home,” Sachs says. “This is a need for students at all levels of their education.”

Dr. Edward J. Leach, vice president of the League for Innovation in the Community College, says his organization is sending the FCC a letter supporting M2Z’s proposal. “It’s a great concept to provide free service and high quality service,” he says. “As far as community college students are concerned, it would be a wonderful opportunity for a large number of them that don’t have access to broadband, whether it be wired or wireless at home, to have it through this plan.”

M2Z officials say they are working with nonprofit organizations like the League for Innovation to help lobby for the federal government’s support of M2Z’s broadband proposal. The public broadband movement largely took root in Philadelphia in 2004, after city officials approved a citywide Wi-Fi access network.

Other cities, including San Francisco and Tempe, Ariz., have plans to develop low-cost or free metropolitan wireless networks.

Closing the Market
If the M2Z proposal is to prevail before a Republican-dominated FCC, it has to overcome the objections of free market advocates. The primary argument against the plan is that granting M2Z national rights to the spectrum abandons the free market principles established by the auction process.

“My perspective is that this is not a good proposal. We should be moving in the direction of a property rights regime. This is kind of a throwback to the administrative allocation of spectrum that prevailed in the early days of radio and TV,” says Dr. Thomas Lenard, the senior vice president for research at the Progress & Freedom Foundation, a market-oriented think tank in Washington, D.C. Lenard says the government can provide direct assistance to Americans who cannot afford broadband rather than granting what would be considered a subsidy to a company offering the service for free.

“If the government wants to provide a particular good, it shouldn’t choose one technology over another,” he says.

Dr. Lawrence J. White, the Arthur E. Imperatore Professor of Economics at New York University, agrees that approving M2Z’s proposal amounts to granting them an unjustified subsidy, not unlike what radio and television companies received decades ago.

M2Z “has good intentions. But what they want to do should be put to a market test,” says White, who describes himself as a Democrat and a staunch free market advocate.

If the goal of the federal government is to facilitate universal access to broadband, then “let’s do it in an explicit fashion and not through this non-competitive process,” he adds.

Atkinson, at the Information Technology and Innovation Foundation, has declined to weigh in either for or against the M2Z proposal, but he has sought to raise the issues he believes should be debated.

“The central issue is whether it makes sense to dedicate this valuable spectrum to one company for a particular proposal,” Atkinson says. “Or would it be better to auction off to the highest bidder to get the highest and best use. That’s really the fundamental decision [the FCC has] to make.”

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