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T-Mobile Appeals to FCC to Rethink 'Free Internet' Proposal

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WASHINGTON (Dow Jones) T Mobile USA, a unit of Deutsche Telekom, flew in its chief technical officer Thursday to plead with the Federal Communications Commission to reconsider an airwave sale in which the winning bidders would have to offer free Internet.

T-Mobile is among the most vocal of the companies opposing FCC Chairman Kevin Martin's proposal that firms buying the channels should devote at least 25% to free Internet access for 95% of the country.

Other major companies such as AT&T, Texas Instruments and Motorola also have weighed in with concerns that the free Internet condition could hurt companies that want their products to be used internationally.

John Muleta, who runs M2Z Networks, the startup that originally brought the free Internet idea to the FCC, said opposing companies simply don't want to face another competitor.

"People that oppose us are doing it for competitive reasons," Muleta said.

For T-Mobile, the sale could be devastating. Its wireless devices operate on airwaves next to the swath that FCC wants to put up for auction. T-Mobile says Internet activity on the adjacent band will interfere with its own wireless Internet services. Moreover, T-Mobile likely would put in its own bid for those channels if the free Internet requirements were lifted.

""We're asking the FCC essentially to slow down and give the industry some time to do some testing," said T-Mobile Chief Technology and Innovation Officer Cole Brodman.

M2Z's Muleta said, "The testing is not going to reveal anything. When you don't win on substance, what you win on is delay."

Delay is likely. FCC's Martin said last week that the sale could be put off until early next year. Other commissioners on the five-member body have raised questions.

But opponents are worried that Martin could easily win support from the two Democrats on the commission, Jonathan Adelstein and Michael Copps, and begin the auction before the end of the year. Martin most likely will be forced to surrender his position as chairman in the first half of next year with the change in presidential administrations.

T-Mobile argues the free Internet plan would deny it full access to its current spectrum block, for which it paid nearly $4.2 billion. The company plans to use those channels to roll out wireless Internet services in 26 markets by the end of the year.

Brodman said T-Mobile already has placed one million mobile handsets in the distribution pipeline for T-Mobile customers.

For M2Z, the delay has real consequences. Muleta said his firm is subsisting on investments from venture capitalists in Silicon Valley, Calif., who believe the company can turn a profit once its services are placed into a large number of households. But the rollout could take several years.

"We've been doing this for two and a half years with no guarantee that we'd actually win the license," Muleta said. While M2Z originated the free Internet idea, he said other startups have emerged with an interest in building similar networks with free Internet.

T-Mobile isn't the only company that would be affected if the FCC implements the free Internet plan. Other wireless companies such as MetroPCS Communications Inc. (PCS) operate in airwaves near T-Mobile's.

Satellite companies operating on the other side of the airwaves that FCC wants to sell, including ICO Global Communications and TerreStar, also have expressed concerns. Both companies want to sell satellite mobile phone and Internet services. ICO has argued to the FCC that the interference would be more damaging for satellite mobile phones than other devices.

M2Z's Muleta has little sympathy for the interference fears. "In radio, there's always interference," he said. "That's the whole point of the FCC rules."

For M2Z, the key to success is getting as much of the country as possible online. Without widespread Internet access, "All the sort of really interesting stuff you're investing in in Silicon Valley in terms of applications is limited," Muleta said.

T-Mobile's Brodman is skeptical about the money-making potential of free Internet, citing several failed business attempts to offer large free WiFi wireless networks. "I'm not aware of any that have really had any success."

-By Fawn Johnson, Dow Jones Newswires; 202-862-9263; fawn.johnson@dowjones.com

(END) Dow Jones Newswires

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