Virtual game world hires real economist

Like many central bankers, Eyjolfur Gudmundsson spends his days fretting about inflation, making sure monetary growth is reasonable and trying to collect data about the economy.

The difference is that the economy Guodmundsson oversees exists only in the virtual world of Eve Online, a science fiction computer game run out of Iceland.

Guodmundsson is the newly appointed chief economist for CCP Games, which hired him in June to quantify the wheelings and dealings of Eve Online's denizens, which number about 200,000 players.

CCP hopes that will grow 50 percent by the end of 2008 to be about the same size as Iceland's population.

"There's a lot of discussion in the game about inflation and that is my job, to find out if inflation is going on," said Guodmundsson, who has a doctorate in environment and resource economics from the University of Rhode Island.

Players want standardized data about Eve's economy to help them track prices and make investment decisions as they battle to control interstellar space on behalf of mega-corporations whose size and power would make any real multinational blush.

"This makes the consumers behave in a more natural way because they are competing against each other on multiple levels, not only on a tactical level in combat but for logistics and resources. That builds consumer behavior and patterns that you see in the real world," Guodmundsson said.

It's a darkly literal twist on the creative destruction beloved by classical economists--players create things, like heavily armed starships and alliances, to destroy rivals.

Eve's economy is rooted in activities such as mining raw materials. Players deal in interstellar kredits, or ISKs, a play on the trading symbol for Iceland's currency, the krona.

Just like for a Wall Street stock investor, a Singaporean commodities trader or a London foreign exchange dealer, information is key. In this regard, Guodmundsson is the envy of every policymaker who has wrestled with incomplete data--all deals and prices are instantly captured by CCP's computers.

"As a real economist I had to spend months trying to find data to test an economic theory but if I was wrong, I wasn't sure if the theory was wrong or the data was wrong. At least here I know the data is right," Guodmundsson said.

As new players join, CCP adds new planets and asteroids that can be exploited, one of several "faucets" that serve to inject funds into the universe and keep the economy ticking.

"After we opened up an area where there was more zydrine (an in-game mineral), we saw that price dropped. We did not announce that there was more explicitly, but in a matter of days the price had adjusted," Guodmundsson said.

He is tasked with figuring out whether the game has enough "sinks" that can soak up excess money if it looks like an inflationary bubble is emerging.

CCP pricked such a bubble when it overhauled the system for producing player-created items. The 425mm railgun- a powerful gun for the large ships that are a stalwart of any serious battle fleet--dropped to a fifth of its previous price.
"We think Milton Friedman would definitely like this," CCP Chief Executive Hilmar Petursson said, referring to the American economist best known for his theory that money supply ultimately drives the boom and bust of the business cycle.

Guodmundsson is also looking into whether lessons learned in running a virtual economy can apply to real-world ones. It's a rich field that is drawing interest since experiments that would be impossible in real life can be arranged with a few software tweaks.

"We watch price bubbles happen in Eve Online. We are thus able to watch in rapid fashion, a mathematical simulation of those price bubbles. We then are in a position to extrapolate price bubbles in the real world and trade on that, in futures or whatnot," Petursson said.

When pressed on whether he thought his work would really eventually give CCP an edge in real-world financial markets, Guodmundsson declined to answer, but said: "I strongly believe that in future we will look to virtual worlds to see how things have evolved in that world and apply that to a real-world situation."

Story Copyright © 2007 Reuters Limited. All rights reserved.

Newsmaker: The secrets of a teen's Internet success

newsmaker Internet start-ups have a legacy of twenty-something founders. Just look at Microsoft, Yahoo and Google.

But that esteemed age limit is lowering.

Catherine Cook, the 17-year-old co-founder of MyYearbook.com, hatched the idea for her now-thriving online yearbook site when she was a sophomore in high school. Now, in little less than two years, the site is making millions in annual revenue from advertising, Cook said, and attracts more than 3 million monthly visitors, according to research firm ComScore. (In 2006, it raised $4.1 million in venture funding from U.S. Venture Partners and First Round Capital.)

It's also in a sweet spot for online marketing. Its audience is primarily between the ages of 13 and 22, and nearly all are from the United States.

By next year, Cook hopes to turn MyYearbook into the largest teen media company online, buoyed by a new user-generated magazine and tools that let high schoolers challenge each other to voting duels on topics like best-looking senior. While she's plotting online domination, she will also be studying international business and marketing at Georgetown University this fall.

CNET News.com talked to Cook about skipping school, raising venture capital and the future of online publishing.
Q: So how did you get the idea for MyYearbook?
Cook: Basically, Dave (my brother) and I were pretty new in our school. We had just moved to Montgomery the year before, so none of us really knew that many people in our grades, and we turned to the (yearbook) as a way to get to know other people in our classes better at the time. David was showing me a picture of some girl...and we thought it would be much cooler if you could make your own, maybe post a picture online and have a profile. This was even before we had even heard of Facebook. So we started brainstorming this idea, and a few days later we approached Geoff at dinner.

This was your other, older brother?
Cook: Yes, my oldest brother, Geoff, and he invested $250,000. He has the money from a Web site he started in college. And from there, we started working on all of our templates, which were actually made in India because our programming team is there. My brother had worked with programmers in India before so it just seemed like a good option for us, too.

So the whole site was developed in India?
Cook: Yeah, the original. It kind of came around in phases. The first phase was just launched in our high school, so it was like a testing one. The original site we launched didn't have any of our most popular features. All the core features of the site all came from my friends' ideas--they were telling me during lunch, all the break-the-ice features and secret admirer stuff.

That's interesting. All of the popular features were your friends' ideas?
Cook: Actually, the most popular feature right now, Battles, which has like made our page views go up by 500 percent since this February, was someone on the site's idea. That person said that he wanted a new way of doing superlatives, so I came up with Battles--a one-on-one image contest, instead of just being against everyone in your class. Best-looking is the most popular category. We launched video battles about a month ago, and now best music video is also very popular.
How do you think your site compares to MySpace.com and Facebook?
Cook: We're actually really different than those sites. Comparatively in page views, MyYearbook is third in the United States after MySpace and Facebook, but we're bigger than Bebo, Hi5, Tagged.

But compared to MySpace and Facebook, MyYearbook is a lot younger, so 80 percent of our users are between 13 and 22, whereas MySpace reports they only have 12 percent of teen users and Facebook is now going mass-market. So we definitely stay to our niche.

Another big difference is unlike MySpace and Facebook, on those sites what you really do is to click on profiles and go into the groups, but on MyYearbook only 10 percent of the page views come from clicking around profiles. The other clicks are for our other features like Battles, MyMag and quizzes. That's where almost all of the traffic comes from.

That's something that is very unique about MyYearbook. There are a lot of sites that let you make a profile, but we are the only one that really has very competitive Battles, online magazines that users make themselves, and I think we have more than 100,000 quizzes.

You came up with My Mag--a user-written teen magazine. Why do you think it's resonating with your visitors?
Cook: My Mag is really for people who want to be on the site but who aren't necessarily into Battles or feel the need to challenge people. I think it's so popular because all of the new articles are things that our users write. We do have professional editors--otherwise the articles wouldn't be as good as they are.
But about 2 percent of the articles (submitted) get posted to the site, and they're all very relevant to teens, not just about celebrities--things like managing popularity in high school.

There seems to be an absence of that kind of material.
Cook: All the teen magazines like Teen People and Elle Girl, for instance, even stopped doing their print publications because there was no longer a market. Their online publications aren't really going through because very established print media companies aren't used to doing it in online, and so we are actually ahead of those. Personally, I find a lot of the teen magazines only focus on celebrities, which kind of bothers me because I don't care what Angelina Jolie is doing this week. That doesn't affect me in any way.

The (most popular) articles that are on My Mag get about 3,000 comments a day. The other ones average around 1,000.

So from that perspective, what do you think the future of media is?
Cook: I think that people will realize that user-generated content doesn't have to be like, bad. A lot of older companies and print publications hear "user-generated content" and they're kind of like scared because they don't trust what people will come up with. But I think that's the only way you can really stay in tune with what your members want, with what your readers want. So I think other media companies will realize that that's kind of the key to staying relevant. You have to post what your members want by actually seeing what they write.
Does that mean you plan to start publishing original content alongside your user-generated content?
Cook: Yeah, like once in a while, I'll write a feature article.

What was the last one you wrote?
Cook: It was about why popularity doesn't matter in terms of high school, knowing that I've not been very popular in high school myself.

What about MyYearbook? That had to boost your image.
Cook: I was very well-known, but I wasn't necessarily in the popular group. I was the class entrepreneur, so I was mentioned in the class president speech, valedictorian speech and all the class advisory speeches so everyone knows who I am, but I'm not that popular. I have a few close friends, but I don't have much time for parties and stuff because I'm always working.
How much time do you spend working on MyYearbook?
Cook: Forty hours a week or more sometimes. In the summer, I work about 60 hours a week. During the school year, it ranges between 25 to 40 hours depending on the week. In college, I plan to still be working pretty much as I had been in high school because I think I actually can miss a lot more college classes than I could high school classes.

Aren't you tempted to skip college?
Cook: I could, because I do have a very solid job. But the thing is, I don't want to quit something before I even see what it's like.

Is MyYearbook the first of many companies you want to start?
Cook: I always wanted to be an entrepreneur. I didn't necessarily know it would be an Internet company, but I definitely don't think that MyYearbook is the last thing I'll start. Say in 10 years, I don't think I'll able to settle down and work a normal job. I've gotten rather used to being the boss. It's very fun running your own company.

I saw you speak at the Mashup 2007 conference with several other teen Internet entrepreneurs on stage and I was wondering how you thought you were different from your peers?
Cook: Well, obviously we're all driven. But I noticed one of the questions, I remember I made everyone laugh, they asked me how I balanced school and working. I said I spent a lot less time on school, and I noticed other kids on the panel would (sacrifice their work for school). I always put MyYearbook first, no matter what. I didn't study for any of finals this year or midterms, Also MyYearbook is bigger, so I have 30 employees working in the office.

So did your grades suffer at all?
Cook: I think they turned out pretty well. I had a 4.0 when I graduated. Junior-senior year my grades dropped, but not by that much. I never found school that difficult, and I would just find ways to multitask so I didn't have to do certain things. For instance, all senior year, I never asked for or picked up my government policy books. Instead I just downloaded the chapters, because they had them on podcast, onto my iPod and listened to them in the car on the way to the office.
What was it like when you first raised money for MyYearbook? Did you go to those meetings?
Cook: Geoff, because he is the CEO, he went to those meetings. Even though I thought of the company I still had to graduate high school. We had a PowerPoint I put together with the business plan. It's almost a blur because it was so stressful and time-consuming. Seriously, I seldom got three hours of sleep per night, but when we finally presented, it was a relief.

How many days did you miss from school, and did your parents support you with writing notes?
Cook: My mom did yell at me every time I got a note from the school saying that if I miss one more class I would lose credit. So I kept having to go into my vice principal's office and argue that it should be an excused absence, every time I was absent. So that was kind of annoying because I did almost lose credit. But my mom was very supportive. All she really cared about was that I graduated high school.
So I wrote this story that teens aren't using e-mail anymore, and you were the lone person in the story who still used e-mail. Do you think e-mail will die out in favor of text messaging and other modes of communication?
Cook: Personally, I don't think so. One of the reasons e-mail could never fully die out is just because it is a lot easier when you're crunched for time to write e-mail rather than to make a phone call, or even sending text messages can get really expensive and e-mail is free. I send so many e-mails to my friends and all of them send e-mails back, so I know I'm not crazy.

The only thing that's definitely dying is snail mail. When I was doing my college admissions, I couldn't even remember how to address an envelope. I had to look it up. I couldn't remember where the ZIP code went.

But weren't your college applications online?
Cook: I did all my applications online except for Georgetown, which didn't offer it to be done online. But I always had to mail my high school transcripts and SAT scores.

Apart from MyYearbook, what other sites do you visit? And what do you do for fun?
Cook: I really like Gamehouse.com. I like the little gaming sites that are all over. Other than that I do have a Facebook (page) because I like to check what all the Georgetown people are doing. And I'm into blogs. I read Mashable, TechCrunch and GigaOm.

Also I love the Scooby-Doo PSP games, and I'm pretty good at ultimate Frisbee, soccer, gymnastics. I like to basically do any sport.

So here's the classic college admission question: Where do you see yourself in 10 years?
Cook: I don't know. I can actually see myself working in a different country, so that's why (I'm majoring in) international business. I don't think in my freshman year I could've ever seen myself owning such a giant company by my senior year, so it's really hard to say.

Adobe: No threat from PDF spam

PDF spam--junk e-mail with its message attached as a PDF file to get past spam filters--poses no security risk, says Adobe Systems.

Asked if PDF spam can embed malicious software, Erick Lee, a security engineer at Adobe, wrote in an e-mail on Wednesday that "PDF is no more able to embed malware on an unsuspecting user's system than any other typical e-mail attachment."

Over the last two months, security vendors have seen a spike in spam embedded within PDF documents. Last week, it was used in a large-scale "pump and dump" scam that reportedly caused a huge spike in spam levels and in the share price of the company highlighted in the PDF spam campaign.

According to the PDF-creation software maker, there is no hard evidence that such spam exposes users to any security risk.

"Although a nuisance, we have not verified an incident where PDF spam became a security issue," Lee said. "Users can be assured that PDF is still the de facto standard for more secure and dependable electronic information exchange."

Nonetheless, Lee added, the onus is on users to protect themselves. "(We) recommend that users exercise skepticism and caution when receiving unsolicited e-mail communications requesting user action, such as opening attachments or clicking Web links," he said.

In Symantec's latest report, released on Monday, the security vendor noted that PDF image spam, which started to emerge in June this year and is on the rise, accounted for between 2 percent and 8 percent of all spam in July.

Ascertaining authenticity
One way a valid PDF sender can ensure that the recipient knows the file is authentic is to use a certified-document digital signature, said Lee.
he security engineer noted that the digital signature, when combined with Adobe Acrobat and Reader, will "provide additional validation of the author and content."

Lee said that, to ensure the security of the PDF document, the company has a Dynamic Link Library file called PDF IFilter, which "enables the creation of software that analyzes PDF files."

The PDF IFilter is used by security vendors, as well as search-engine companies, to scan the contents of PDF files. "For example, when a user searches for a PDF file on Google, they can click a found link to see the PDF file's contents in a HTML page," Lee explained.

Adobe said it is working with spam-filter companies to help prevent PDF spam from "getting through to inboxes" by implementing the PDF IFilter.

Details on potential vulnerabilities and their solutions are available on Adobe's Web site, and all documented security vulnerabilities and their solutions are distributed through the Adobe security-notification service.

Lynn Tan of ZDNet Asia reported from Singapore.

Sprint earmarks $5 billion for WiMax network

Sprint Nextel said on Thursday it could spend as much as $5 billion by the end of 2010 on a new network based on the emerging high-speed wireless technology known as WiMax.

The No. 3 U.S. wireless service said it expects spending on the network through the end of 2008 to be at the low end of its previously announced estimates because of its agreement to connect its network with Clearwire, a small wireless service provider.

WiMax is a wireless technology that Sprint wants to use to blanket entire cities, enabling wireless Internet access on everything from cell phones and laptops to video game players and cameras.

The technology is expected to support Internet access at speeds up to five times faster than typical wireless networks, though it is still slower than wired broadband such as DSL.

Some investors are concerned that Sprint is betting on a largely unproven technology. But Sprint Chief Executive Gary Forsee said the company would benefit by having an advanced network ahead of its rivals.

"We in fact will have a mobile broadband network at least two years ahead of other providers that will be out there," Forsee said at a company conference in Tysons Corner, Virginia, where Sprint is showcasing the technology.

Sprint's shares fell 43 cents, about 2 percent, to close at $18.20 on Thursday. Shares of Clearwire lost 97 cents, about 4 percent, to close at $22.55.

Sprint said it expects to spend $2.5 billion on the network through the end of 2008 compared with its earlier estimate of $2.5 billion to $3 billion.

Sprint expects to reach a potential 100 million customers in that time, with the company providing coverage to 70 million people and Clearwire covering 30 million people.

Sprint, which will market the new service under the Xohm brand (pronounced "zoam"), said it expects coverage to expand to 125 million people by 2010 at an additional cost of $2.5 billion, bringing total network spending to $5 billion.

But that expansion will depend on the success of the service, Sprint said.

Sprint expects its WiMax network to generate positive free cash flow beginning in 2011. Free cash flow refers to operating income excluding depreciation and amortization, but including capital expenses, working capital and other cash requirements.

It also expects between $2 billion and $2.5 billion in revenue from WiMax in fiscal year 2010.
Last month, Sprint said it would cut the initial costs for building the network through its partnership with Clearwire. The two companies plan to connect their services and allow customers to move between their networks.

Sprint also has an agreement to feature Google's Web search services via a portal tailored to WiMax devices.

Barry West, president of Sprint's high-speed wireless unit, said in a presentation that the company has commitments from device makers to embed 50 million units in the United States with WiMax connections over the next three years.

Sprint has previously announced the top three mobile phone makers as technology partners for its plan to start offering services based on WiMax next year. They are Nokia, Samsung Electronics and Motorola.

Story Copyright © 2007 Reuters Limited. All rights reserved.

Canonical dismisses Ubuntu security concerns

Concerns over the security of the Ubuntu Linux distribution arose this week, when five out of eight community-run servers sponsored by Canonical had to shut down.

The servers had "started attacking other systems," according to an Ubuntu newsletter. The issue first came to light on Saturday, when Ubuntu users voiced concern over a problem with local community (loco) hosted servers.

London-based Canonical moved quickly to minimize the issue and reassure users that the operating system is secure.

"This is not a problem with our production servers," Gerry Carr, marketing manager of Canonical, told ZDNet UK, sister site of CNET News.com. The issue was with "loco servers that we pay for but that do not sit in our data center." As a result, the security in Canonical's data center was "in no way compromised by these attacks," Carr said.

While the company "held its hand up" in regard to the problem, it completely rejected any implication that user security had been compromised, Carr said.

"Any (implication), and there has been some, that this episode has, or had, any bearing on our enterprise readiness or the Ubuntu downloads is so completely wide of the mark as to miss the point entirely," he said. "It has nothing to do with downloaded copies of Ubuntu; it is separate servers on a separate network in a separate location."
But the company did accept that the servers had been poorly managed. The problem arose because the responsibility for security lay "between Canonical and the community," Carr said.

"Most of the time," this was just as it should be, Carr said, but "server management is maybe not one of those times."

The issue is one for the community to decide, he said. "Either the loco servers come into our data center and are subject to our standard, rigorous security and management, or they sit completely outside of it and are run by the community."

The issue is outlined in detail in an e-mail from Ubuntu's community manager, Jono Bacon.

Colin Barker of ZDNet UK reported from London.

White-space spectrum debate rages

Technology companies are putting pressure on the Federal Communications Commission to open up unused wireless spectrum between TV channels for use with unlicensed devices, but the TV broadcasters say there are still too many interference issues.

Most broadcast channels are separated by small swaths of spectrum, or unused channels called white space, which limit interference from other stations. Technology companies and consumer advocates believe the use of this unlicensed spectrum could open up a wireless broadband pipe into the home, providing a competitor to cable and DSL services.Technology companies in particular say that using the spectrum between the TV channels could unleash a wave of innovation. These companies, which include Microsoft, Intel, Google, EarthLink and Dell, have joined forces. Calling themselves the White Space Coalition, they've been lobbying the FCC and Congress to open up this spectrum.

Not surprisingly, TV broadcasters oppose allowing any unlicensed device to use white-space spectrum because, they argue, these devices would interfere with television broadcasts, potentially harming the federally mandated transition from analog to digital TV service.

"There are serious interference issues with unlicensed devices," said Dennis Wharton, spokesman for the National Association of Broadcasters. "Our suggestion to the FCC is, let's get through the analog transition to digital TV before we suggest introducing unlicensed devices onto airwaves that could cause disruption to millions of TV viewers."

Congress has mandated the airwaves in the 700MHz band be vacated in February 2009, forcing analog TV broadcasters off those channels as part of the long-anticipated switch to all-digital television. Current and would-be wireless broadband operators are eager to get their hands on the spectrum because of its inherent physical properties, which allow signals to travel farther and more easily penetrate walls.

Countering Wharton's argument, the White Space Coalition says that it can design devices that don't interfere. And it submitted prototypes to be tested by the FCC earlier this spring.

Testing of these devices has recently been completed with mixed results. On July 31, the FCC issued a report saying that a testing prototype developed by Microsoft failed to detect digital TV signals in order to avoid them in tests designed by the commission. But another device, made by Koninklijke Philips Electronics, was able to detect broadcast signals, according to the commission's report.

Microsoft is now saying that the results of the FCC test are invalid. In a letter it filed this week with the FCC, Microsoft said the device the FCC tested was defective. And another model of the same device worked successfully in a demonstration it gave to the FCC last week, according to the letter.

"We don't think anything the commission did in its testing in any way diminishes the potentiality of white-space devices," said Ed Thomas, former chief engineer at the FCC and now technology policy adviser and partner at Harris Wiltshire & Grannis, the firm representing the White Space Coalition. "We still believe that the white spaces could be used without causing harm to broadcasters. And we want to work with the commission to product the services of incumbent licensees."

What is white space and why should I care?
The FCC has had an open proceeding on the possibility of using this spectrum since 2002, but it still hasn't taken any action. The FCC's office of engineering and technology plans to hold an open meeting Thursday to discuss testing options for new white-space devices.
White space spectrum, like the 700MHz spectrum that will be auctioned off early next year, is considered perfect for wireless broadband use, because it propagates over long distances and penetrates through obstacles.
Today, both the 700MHz and white-space frequencies are used to deliver analog TV service. But when broadcasters transition to digital TV service in 2009, the 700MHz spectrum, which includes broadcast channels 52 to 69, will be auctioned off. And spectrum between channels 2 to 52 will essentially lay fallow. Public policy experts see this transition to digital as a perfect opportunity to make spectrum available for new players who want to compete in the broadband market.

On their own, these slivers of wireless spectrum are not sufficient to provide enough capacity for companies to build wireless broadband services that truly compete against high-bandwidth services offered by the cable and phone companies. But combined with other pieces of spectrum, like Wi-Fi, this spectrum could provide enough capacity to deliver competitive services.

"The 700MHz spectrum is not enough to compete against a service like Verizon's Fios," said Harold Feld, senior vice president of public-interest nonprofit Media Access Project, in reference to Verizon Communications' high-capacity network featuring fiber-optic connections to the home. "It's only 62MHz of spectrum. So you're going to need a lot more. That's why it's important to provide access to licensed as well as unlicensed spectrum."

The amount of spectrum that is available in white spaces varies from market to market. In rural areas where fewer broadcasters are operating, it can provide a substantial amount of capacity. But in dense urban areas, white spaces offer far less capacity because more broadcasters are using the spectrum. For this reason, white-space spectrum could be particularly valuable for providing broadband access in rural areas, where large cable companies and telephone companies have not built wired infrastructure.But it also could be used in urban areas. Because white-space spectrum is unlicensed and, therefore, free to anyone who wants to use it, it makes a nice complement to citywide Wi-Fi networks. Wi-Fi operates in the higher frequency bands of 2.4GHz and 5.0GHz. But because it's at a higher frequency, it propagates over much shorter distances and has difficulty penetrating walls and sometimes even foliage.

White-space spectrum in the analog channels, which operate between 54MHz and 698MHz, provides an inexpensive way for service providers such as EarthLink, which is building citywide Wi-Fi networks, to extend their reach and improve in-home coverage.

And now that the FCC has rejected rules requiring winners of certain 700MHz auction licenses to offer wholesale access to that spectrum, access to white-space spectrum is even more important for prospective competitors of the cable and phone companies.

"We didn't get the open access that we wanted on the 700MHz auction," Feld said. "So it makes it that much more important that new providers can access white-space spectrum."

But broadcasters say they don't think it's possible to solve the interference issues. With roughly 15 percent to 20 percent of the TV-viewing public still getting their TV service over the air, Wharton said, the risk is still too high.

"If there was ironclad proof that no person in America would lose access to over-the-air TV signals, then maybe we wouldn't have a problem with the introduction of unlicensed portable devices," he said. "But engineering studies and folks that we have talked to say the likelihood of developing a product that wouldn't interfere with TV broadcasts in large markets is nil."

Start-up wants feds to decide on free Wi-Fi plans

A Silicon Valley start-up is pressing federal regulators to rule on its long-standing request to build a free, ad-supported wireless broadband network that could reach most Americans within a decade.

More than 15 months have passed since M2Z Networks first petitioned the Federal Communications Commission for a 15-year exclusive, nationwide license to build and operate in the 2155MHz-to-2175MHz spectrum band, which currently lies fallow.

The wireless industry strongly opposes the idea, arguing that the law requires unused airwaves to be opened up for auction and that M2Z's proposed service would provide "limited" consumer benefits.

M2Z, based in Menlo Park, Calif., claims that under federal law, a decision about whether the proposal satisfies the "public interest" should have been issued within a year of its first petition, or by May 6.

In a statement this week (PDF), the company said it plans to ask the U.S. Court of Appeals for the District of Columbia to force the FCC to make that determination. M2Z Chief Executive John Muleta told CNET News.com on Thursday that lawyers were still preparing the paperwork and had no projected filing date in mind.

An FCC spokesman declined to comment because the proceeding is still pending.

What's more, as first reported by The Wall Street Journal on Wednesday, Muleta said the company heard late Friday that FCC Chairman Kevin Martin recently circulated a recommendation that the petition be denied. The other four commissioners haven't yet decided how to rule, but "to our understanding, there has not been a thoughtful analysis as to whether free broadband would be in the public interest," Muleta said.

FCC staff members have informed the company that they believe the deadline for a response is September 1, based on the date of a subsequent filing by M2Z, Muleta said. M2Z disagrees with that interpretation but nevertheless fears that the agency will rush to judgment in an attempt to meet that deadline. The appeals court may have to decide who's right.

M2Z, which was founded in 2005, is the brainchild of Muleta, a former FCC wireless telecommunications bureau chief, and Milo Medin, a former NASA engineer who went on to found the @Home cable broadband access service. So far, the company has received backing from three high-profile Silicon Valley venture capital firms: Kleiner Perkins Caufield & Byers, Charles River Ventures and Redpoint Ventures.

The company says the goal behind its proposed service is to help boost competition in the broadband market and to bridge the nation's much-talked-about "digital divide." As part of its FCC petition, it said it would ensure that the network could reach 33 percent of the American population within three years of starting its operations, 66 percent by its five-year anniversary and 95 percent by the 10-year mark.

The "free" service, supported by ads, would actually require purchase of an "M2Z reception device," which the company said could cost as much as $200 when first unveiled. It would offer speeds of at least 384 kilobits per second down and 128Kbps up. By comparison, the major DSL carriers' advertised "starter" plans offer downstream speeds of 768Kbps. (Muleta claimed that his service would be comparable, citing data showing that in reality, those companies rarely surpass the speeds M2Z would provide.)

Plans a "premium" service
M2Z also plans to offer a "premium" service, at an unspecified cost, that would give subscribers access to 3-megabyte-per-second speeds. It would also allow subscribers to escape the mandatory filters, designed "to block access to sites purveying pornographic, obscene or indecent material," that will accompany its free service.

Muleta said that move is legally necessary because the company will have no way of accurately knowing the age of its users. (There is no law requiring this, however. And many free open Wi-Fi spots, including ones run by government agencies, do not filter "indecent" Web sites.)

The company's request for spectrum access runs counter to the FCC's ordinary procedure of going through a lengthy rule-making process and then auctioning off vacant spectrum. But M2Z disputes any suggestion that it's getting anything for free. The company said it plans to hand over 5 percent of those gross revenues to the U.S. Department of the Treasury, which it claims will raise billions of more dollars than an auction of the same spectrum would.

M2Z has also pledged to let any federal, state or municipal public-safety organization hook up as many devices to the free network as it pleases.

According to M2Z, its plan has received more than 2,000 favorable public comments. Officials from about a dozen states have reportedly endorsed the concept, as have members of Congress, including Rep. Anna Eshoo (D-Calif.), whose district includes Silicon Valley. Advocacy groups ranging from the National PTA to the Minority Media and Telecommunications Council to Public Knowledge have also offered support.

Wireless association CTIA, which represents major carriers like AT&T and Verizon Wireless, has urged the FCC to deny the firm's petition because it claims that granting it would "create a myriad of legal and public-policy problems without effectively serving the public interest." In comments filed with the FCC in April (PDF), CTIA called M2Z's plan a "self-serving attempt to gain access to valuable spectrum outside of the auction process." The group said federal law and FCC precedent "clearly" require the agency to open the airwaves to bidding by any interested parties, and it urged the commissioners to reject M2Z's arguments to the contrary.

The trade group also claimed that M2Z's offering would be of "limited benefit" because "such services--at higher speeds than M2Z proposes--are available today to the American public from a variety of sources."

Muleta shrugged off those comments. "The big carriers have an incentive to kill ideas that compete with them and that have dramatically different pricing structures," he said.