Study Says M2Z Public-Safety Proposal Could Save Big Tax Bucks

Telecom Policy Report, March 5, 2007

Benefits to the American taxpayer could total between $18 billion and $25 billion if the Federal Communications Commission (FCC) approves the plan submitted by M2Z Networks to build a family-friendly wireless nationwide broadband network, a new study concludes.

Professor Simon Wilkie, Ph.D., executive director of the Center for Communication Law and Policy at the Annenberg Center at the University of Southern California, conducted the study The Consumer Welfare Impact of M2Z Networks Inc.'s Wireless Broadband Proposal. He's no stranger to the telecom industry, usually focusing on game theory (useful for those looking to bid in FCC auctions), its application to regulation and policy design, and the economics of the communications industries. His most recent research took on the wholesale telecommunications market and the concept of diversity in media markets. Prior to joining USC, he was an assistant professor of economics at the California Institute of Technology and a member of technical staff at Bell Communications Research. He also served as the FCC's chief economist July 2002 to December 2003.

The study, which was requested by M2Z to demonstrate the public interest benefits of its application which is pending before the FCC, considered the benefits to the taxpayer of M2Z's plan to build a nationwide broadband network. In May 2006, M2Z filed an application with the FCC requesting authorization to lease for 15 years 20 megahertz of the currently underutilized spectrum in the 2155 MHz-2175 MHz band. M2Z is backed by Kleiner, Perkins, Caufield and Byers; Charles River Ventures; and Redpoint Ventures, three of the most successful venture capital firms in Silicon Valley with over $5 billon of capital under management.

M2Z faces competition from Morgan O'Brien's Cyren Call Communications (TelecomWeb news break, Feb. 2) and the newly formed Frontline Wireless LLC (TelecomWeb news break, Feb. 27), which includes former FCC Chairman Reed Hundt in its leadership lineup.

The report notes three key areas where M2Z's entry is likely to have an impact, and the net present value (NPV) of consumer benefits was estimated.

>>M2Z's entry into the market offering free broadband service would promote competition, saving broadband consumers $13 billion (NPV) in broadband access fees;

>>Increased broadband access to consumers who do not currently have access to a broadband network would result in a NPV benefit to consumers of between $5 billion and $12 billion; and

>>M2Z's proposal to pay the U.S. Treasury 5 percent of annual gross revenues from subscription services would result in NPV payments of between $35 million and $1 billion, depending on different assumptions of M2Z's market share and premium service customers.

"There is bipartisan agreement by policymakers in Washington, D.C., and throughout the country that there is an urgent need for all Americans to have broadband access," says Wilkie. "M2Z's unique proposal could be the solution to a problem, how to ensure broadband access that has stymied policymakers so far."

"The mission of M2Z is to serve the American consumers by building a family-friendly broadband network that will be available to Americans across the nation," adds Milo Medin, chairman of M2Z Networks and a member of California's Broadband Taskforce. "We are pleased that Dr. Wilkie's study reaffirms our belief that the benefits of M2Z's plan address the urgent need for universal and affordable broadband and are in the public interest."

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