Bidders Plunk Down $119 Million For New Terrestrial TV Service

Cynics may predict that a new pay service to compete with cable and DBS will never happen. The $119 million in hard cash offered by 10 winning bidders in last month's FCC auction indicates otherwise.

"I don't think the government would have pulled in more than $100 million if the buyers weren't planning to use it," said Kirk Kirkpatrick, chief executive officer of MDS America, winning bidder for 60 mostly rural licenses.

Last week, the FCC told the victors they have until March 2 to make good on their bids.

The 192 licenses are located in the spectrum band already used by DBS operators. Rather than relying on satellites to offer the service—dubbed Multichannel Video Distribution and Data Service (MVDDS)—signals will be delivered to DBS-size dishes via ground-based microwave transmitters.

DTV Norwich gobbled up the country's five largest markets and 41 others for a total of $85 million. The company is 49% owned by Cablevision, the eighth-largest cable MSO. Taking the next seven markets and licenses for 30 others was South.com, which is backed by DBS powerhouse EchoStar Communications. Thanks to a 35% small-business bidding credit, South.com will pay just $28 million for its spectrum.

Both companies are keeping their plans close to the vest, at least until Feb. 17, when a post-auction down payment is due and the FCC's moratorium on negotiations between the bidders is lifted.

Both companies could put the spectrum to use for existing businesses. EchoStar, some analysts said, could solve satellite bandwidth constraints that it faces in delivering local broadcast signals in all 210 markets. Cablevision can supplement its planned VOOM satellite-TV service, which aims to carry a heavy load of high-definition programming.

An EchoStar legal challenge to the service has led many to predict that South.com's purpose is only to bottle up the frequencies in friendly hands. South.com CEO Phanie Sundheim, though, indicated that warehousing the frequencies isn't in her plans. "We look forward to delivering services that are a benefit to consumer," she said last week.

A Cablevision spokeswoman declined to comment. Cablevision's partner in the venture is former U.K. cable executive George S. Blumenthal, who founded Cellular Communications in the '80s. He didn't return a call for comment.

Kirkpatrick says his company will be a big winner in two ways. First, he greatly improved the footprint of the rural broadband service he plans to roll out. Second, his company will do a strong business selling patented technology necessary for the other winners to roll out their services.

As for his own service, Kirkpatrick has a timetable but is isn't ready to give details. There is only a small chance he'd hook up with a large corporation, he said, given the large equity stake likely to be demanded.

Besides the fact that no one has rolled out MVDDS service in the U.S. yet, there are a few other clouds hanging over its introduction. Northpoint Technology, which instigated the new service but didn't participate in the auction, still may appeal last year's federal district court decision to dismiss patent claims against MDS.

Northpoint also has a suit pending in a federal appeals court arguing that it should have received all the MVDDS spectrum free. In that same case, DirecTV and EchoStar argue that the service will cause unacceptable interference to their customers.