It appears that M2Z Networks may be leaving the wireless world similar to the way it entered. That is to say, in a murky sort of way.

M2Z is the entity whose lofty goal was to build a free national wireless broadband network. But last Friday, one of M2Z's investors got a phone call from the FCC with the news that its proposal was dead. M2Z's plan to use AWS-3 spectrum had been before the FCC since May 2006, so the FCC's decision came somewhat out of the blue for its backers.

While some industry insiders have questioned how M2Z would get its spectrum, M2Z CEO John Muleta insists that M2Z would have been one of multiple bidders on the spectrum and would not have gotten it for free. (That raises the question of how M2Z would have the funds to outbid everybody else. Suffice it to say, the proposal came into play when Kevin Martin was chairman of the FCC, and at least according to some industry insiders, it was written in such as way as to guarantee that M2Z would be the winner.)

CTIA was happy the FCC finally and officially decided to ditch M2Z's proposal. Here's how CTIA President and CEO Steve Largent phrased it in part of his statement issued yesterday: “As we had argued throughout the proceeding, a designer allocation auction that would be tailored for one company was not in the public’s interest, especially when that company was offering broadband service that is slow by even yesterday’s standards.” 

When I spoke with Muleta yesterday, he said M2Z's service was not going to be slower than 3G. People could choose their levels of service, sort of like how they can choose between 12 channels of free TV or pay a cable provider for umpteen channels. It wouldn't require people to qualify, say, as low income, to get the free service. "Our service was for anybody," he said. Instead of having to commit to a two-year contract for $90 a month, a consumer could try a lower tier of the M2Z ad-supported free service to discover how they might use mobile broadband, and if they wanted, they could graduate to a higher tier service for a price.

But now that the FCC has squashed M2Z's hopes of getting the AWS-3 spectrum – and Muleta says there is no readily available spectrum anywhere else in the foreseeable future to do what M2Z had planned to do – such a service won't be coming to market from M2Z. The way Muleta sees it, the FCC more or less caved into the demands of the incumbent operators, some of whom insisted M2Z would cause interference with their existing wireless devices. There was controversy over that as well, but Muleta says it boils down to incumbents not wanting a new class of competition coming in – with a disruptive price model. He says M2Z would have saved consumers a lot of money by having its service out there, but the way in which the FCC rejected M2Z's proposal doesn't leave it any other avenue to fight for it.

There's another piece to the story that makes this more than your run-of-the-mill David vs. Goliath. For a period of time, M2Z's proposal called for filtering porn so that kids wouldn't see it on the open Internet. (Open Internet = "limited" free speech? Hard to reconcile those two things, but I'm sure parental controls could address at least some of the content.)  Near as I can tell, sometime around the end of 2008, the porn filtering part of the proposal was removed. Nonetheless, it was a bit of a strange proposal in the first place.

Besides its unique proposition, M2Z caught a lot of attention because it had Muleta, a former FCC wireless bureau chief, at the helm, and it was backed by financial firms Kleiner, Perkins, Caufield and Byers (Google and Amazon are among its success stories); Charles River Ventures (it backed Flarion); and Redpoint Ventures (Danger, Jumptap, Netflix). M2Z sounded like it had a point, and with Muleta carrying the torch, it had credibility, with someone who knows wireless, the FCC and presumably, the ropes.

But the murkiness continues. M2Z's press release yesterday said the FCC notified the company and its Silicon Valley investors on Friday that it had terminated the AWS-3 spectrum public interest rulemaking. An FCC official told me the commission did not terminate the AWS-3 proceeding but agreed not to go forward with M2Z's proposal.

Wireless Telecommunications Bureau Chief Ruth Milkman had this to say in a statement: "We gave careful and thorough consideration to the proposal, but ultimately determined that this was not the best policy outcome. We remain vigilant in our efforts to facilitate the universal deployment and adoption of broadband, especially through the much-needed reform to the Universal Service Fund."

Not exactly a clear explanation about specifically why the FCC shot down M2Z's proposal, or what it plans to do with the AWS-3 spectrum, although one would assume it would follow the usual auction procedure, which may or may not (but probably?) include open access rules.

In the debate over net neutrality and what rules should or should not apply to wireless broadband, occasionally it seems that the "free" Internet concept of freedom gets confused with the concept of a free Internet, or one that involves no payment on the part of the user. This, of course, is where the train leaves the tracks for me – someone has to pay for the network and its maintenance, and wireless carriers have spent billions building networks, so the idea of "free" as in consumers not paying for it just doesn't make any sense unless they're willing to navigate around a lot of ads. Whether M2Z would have figured out a way of making it work, we'll never know. Muleta assures me that the company had a plan and the financial backing to see the thing through.

Muleta said M2Z executives and their backers were disappointed in the FCC's decision – not on a personal level because the entrepreneurs will find something else to do, but for the public that will miss out on the free wireless Internet model. Muleta wasn't specific as to what he will be doing next, except to say "probably something that does not involve regulatory delays." Understandable.

At least the company now has an answer. Rather than floating in murk, it's dead in the water. Quite a way to end the summer.