EchoStar Communications Corp. chairman and CEO Charlie Ergen has formed a company gunning for spectrum he has spent years trying to keep away from Northpoint Technology Ltd., a startup wireless firm that intends to offer video and data in competition with cable and satellite providers.
EchoStar owns a 49.9% interest in a company called South.com LLC, which filed an application with the Federal Communications Commission in November to participate in the Jan. 14 auction that some say will yield $100 million for the U.S. Treasury.
DirecTV Inc. is not bidding.
"I'll confirm for you that EchoStar holds a minority interest in South.com," EchoStar spokesman Marc Lumpkin said last Wednesday.
Denver businesswoman and EchoStar consultant Phanie Sundheim owns the other 50.1% interest, according to FCC records obtained by Multichannel News that won't become public for another two weeks.
The commission accepted six bidder applications. But the agency rejected another 21, including South.com's application, as incomplete in some fashion. The FCC gave the rejected applicants until Dec. 8 to refile.
"EchoStar understands that South.com has submitted a corrected application to the FCC for review," Lumpkin said.
The spectrum at issue has been a source of controversy for many years, mainly because Northpoint has sought to share spectrum used by direct-broadcast satellite providers. EchoStar and DirecTV Inc. loudly complained that spectrum sharing by Northpoint would damage their signals and disrupt service to millions of DBS homes. But the FCC concluded that the spectrum could be shared without causing harmful interference.
"We find it ironic that EchoStar has said for almost 10 years now that [Northpoint] would cause harmful interference and is appealing this in the court, yet it has filed to participate in the auction," Northpoint executive vice president Toni Cook Bush said.
In an interview, Sundheim said South.com was formed in October. But she declined to answer many questions about the company's finances and possible takeover terms by EchoStar. She described herself as an entrepreneur with a graduate degree in business and accounting.
Asked why EchoStar owned nearly half her company, she said: "I think they think that I have a very good plan."
The FCC is auctioning one 500-Megahertz license in every TV market in the country — 214 licenses in all. Winning bidders are permitted to offer video programming and high-speed data using terrestrial transmitters.
South.com's application sought permission to bid for all 214 licenses.
Northpoint sought a free national license, but the FCC rejected that plan.
Although Ergen's EchoStar stock is worth about $7.5 billion, South.com's application said the company qualifies for preferential 35% bidding credits because South.com is a small business controlled by a woman.
"I think the fact that EchoStar can participate in the auction and claim a small-bidder credit is another example of the many flaws of the auction process," Bush said.
Sundheim called the bidding credits "a great system for people like me to get into the communications business."
Under bidding rules, one entity may purchase every MVDDS (multichannel video distribution and data service) license. Cable companies may not bid for licenses that significantly overlap with their cable franchise areas.
Each license is issued for a 10-year term. Licensees have five years to provide substantial service to the public.
Some have speculated that Ergen wants to acquire all MVDDS licenses and warehouse the spectrum for five years to block new competition.
Lumpkin declined to comment when asked why EchoStar is seeking spectrum that it said would damage its business if it fell into the hands of Northpoint.
Northpoint has a case pending before the U.S. Court of Appeals for the D.C. Circuit that challenges the FCC's decision to hold an auction. The company has also been lobbying Capitol Hill to block the auction.
EchoStar and DirecTV parent Hughes Electronics Corp. have also sued the FCC, claiming that the agency erred in finding that the spectrum could be shared without causing harmful interference.