Cablevision Affiliate Tops Airwaves Auction

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A startup affiliate of Cablevision Systems Corp., called DTV Norwich, was the big winner in the Federal Communications Commission spectrum auction that closed last Tuesday and yielded the U.S. Treasury $118.7 million.

DTV Norwich promised to pay $84.6 million for 46 licenses, capping a successful big-market strategy that secured the New York, Los Angeles, Chicago, Philadelphia and San Francisco markets.

The FCC put up 214 licenses, roughly one for each TV market in the country, and all but 22 ended up sold.

Winners may use the spectrum to provide one-way video programming and high-speed data services in competition with cable companies. The FCC gave successful bidders five years to get their systems up and running.

Cablevision's satellite arm, Rainbow DBS, owns nearly half of DTV Norwich LLC. The controlling 51% interest is held by George S. Blumenthal Co. Blumenthal is a veteran of the cellular phone and cable industries in the United Kingdom.

The other big winner was South.com, a company 49.9% owned by EchoStar Communications Corp. Controlled by Denver businesswoman Phanie Sundheim, South.com picked up 37 licenses for $27.7 million. South.com paid for the rights in some big market as well, including Boston, Dallas, Washington, and Atlanta.

South.com's total bid was $42.6 million, but that amount was reduced by 35% pursuant to FCC bidding credits for eligible small businesses. Sundheim did not return a reporter's call.

The FCC calls the service Multichannel Video and Distribution and Data Service (MVDDS), which must share the same spectrum band with direct broadcast satellite carriers.

The spectrum-sharing technology was developed by Northpoint Technology Ltd., which sought a free nationwide MVDDS license from the FCC but was shot down. The company, having refused to enter the auction, is asking a court to force the FCC to void the auction results.

DTV Norwich agreed to pay $24.2 million for the New York City license, the highest anyone bid for a market. But there is a hitch: FCC rules might prohibit the company from holding the license, because of its ties to Cablevision.

Under the auction rules, cable companies were barred from acquiring licenses that have coverage areas that substantially overlap their cable-system footprints. Cablevision is the dominant cable company in the New York City market, with 2.9 million subscribers.

FCC officials plan to review DTV Norwich's ownership structure to determine whether a cross-ownership problem exists. If Cablevision's 49% in DTV Norwich is considered a minority and non-controlling interest, then DTV Norwich would be able to hold the New York City license, an FCC source said.

In a client memo last Thursday, cable analyst Jessica Reif Cohen of Merrill Lynch said she expected Cablevision to resolve the New York City ownership issue by going forward with the announced spinoff of the Voom DBS unit.

"Licensing rules prevent cable operators, or entities with an attributable interest in cable operations, to have an interest in an MVDDS license, covering the same geographic area. We interpret Voom's bid for NYC spectrum as another sign of [Cablevision]'s commitment to the DBS spin-off," Reif Cohen said.

Voom spokeswoman Bo Park said the company was declining to comment on the MVDDS auction.

Another auction winner was MDS America, which picked up 60 licenses in rural markets for $3.9 million.

"Most of our [markets] are very rural, which is the market we told everybody we would go after," said MDS America CEO Kirk Kirkpatrick.

According to MDS America's calculations, DTV Norwich paid $1.86 per household and South.com paid $1.27. MDS America paid 42 cents, Kirkpatrick said.

"I don't think we could have done any better than we did," he said, adding that the company plans to have MVDDS systems operating later in the year.

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