Yes, the FCC can auction off the bandwidth, it’s what they do.
I suspect what we’re talking about free here, is similar to free TV or radio, we’d have to put up with commercials. I suspect that there is a business model that works, where every third page is a Campbell’s Soup commercial or a Personal Injury Lawyer commercial, yadda yadda yadda. Folks put up with this for over the air TV.
They might partner up with Google for the ads, and you'll get yet another Google Adsense box on every page, including your online credit card bill, with each and every pageview cataloged and stored in Google's database. And Google will know everything about you.