Northpoint Can't Pry Loose Spectrum

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Sorry, Northpoint Technologies Ltd. — no free spectrum.

The Federal Communications Commission last week shot down the company's bid to obtain free wireless licenses in every U.S. market, in order to compete against cable operators and direct-broadcast satellite carriers.

Northpoint waited eight years and spent untold treasure on various lawyers and consultants, only to learn that its campaign for free spectrum resulted in a bitter and disappointing loss.

"We feel that we have been treated horribly at the FCC. We don't think it was personal. We just think procedurally, it was handled poorly from A to Z," said Northpoint president Sophia Collier, a lifelong entrepreneur who is far from declaring defeat.

The FCC, in a decision postponed for months due to internal bickering, ruled that 500 MHz of spectrum used exclusively today by DBS could be shared by terrestrial competitors without disrupting the signal in millions of DBS homes.

Northpoint didn't object to that ruling. It was the FCC's next move that has the company enraged. The agency said if more than one company wants a license in a given market, then those companies must vie for that license in an auction.

MSOS, AT&T BACK AUCTION

MDS America Inc. and AT&T Corp. were leading supporters of going to auction.

"By opening up and auctioning the shared DBS spectrum, the FCC will not only provide much-needed revenue for the U.S. Treasury, but will also encourage the most efficient and rapid introduction of this technology," MDS America president and CEO Kirk Kirkpatrick said in a statement.

Northpoint has patented technology that allows spectrum sharing in the DBS band. The company hoped to deploy a ground-based system that would offer dozens of video channels and high-speed Internet access.

Northpoint claimed that an auction was not required by law. It also argued that an auction would punish innovators who find ways to maximize use of the crowded airwaves.

Under the FCC's decision, cable operators may not acquire an MVDDS (multichannel video distribution and data service) license in their incumbent territories.

But EchoStar Communications Corp. and DirecTV Inc. — the two DBS firms that fought Northpoint every step of the way on interference claims — are allowed to acquire MVDDS without restriction.

Details of the FCC's decision came in a press release and in statements by the four commissioners. The actual order was expected to be released this week, an FCC spokesman said.

In a joint statement, FCC chairman Michael Powell and commissioner Kathleen Abernathy said going to an auction was not optional.

"The statute does not support exempting this spectrum from auction, nor does it grant Northpoint the exclusive privilege it seeks," they said.

Northpoint has several options, including taking the FCC to court over the auction decision.

PATENT STRATEGY

The most likely step is for Northpoint to sue auction winners for patent infringement because Northpoint believes only it has viable technology for spectrum sharing in the DBS band.

"I think the patents are the sleeper story here," Collier said.

Under Collier's plan, it's possible that patent litigation could give Northpoint the spectrum by default, if no other company can utilize it without first obtaining a patent-use agreement.

"We will pursue every remedy because that's all we have," Collier said. "So we are very much in the game on that."

Northpoint filed a patent-infringement suit against MDS America when that company tested spectrum-sharing technology in the middle of sugar cane fields in Florida. The case is pending in federal court.

Collier, who owns about 23 percent of the closely held Northpoint limited partnership, said her company would not participate in an auction.

"It's just a road to bankruptcy," she said.

Even though the DBS industry strongly opposed spectrum sharing, the introduction of competition could be of assistance to the proposed EchoStar-DirecTV merger, which many have criticized as creating a DBS monopoly.

"And a merger to a monopoly is hard to approve," FCC member Kevin Martin said last Thursday in prepared remarks to the Carmel Group's Satellite Entertainment 2002 conference in Monterey, Calif.

EchoStar and DirecTV got some potentially good news on the merger front at the Carmel Group event when SES Americom unveiled its proposed plan to launch a satellite TV and data service from the 105 and 105.5 degrees west orbital locations, mid-way between slots used by the two companies.

"I've always believed there was room for an additional competitor," Alpert & Associates president Mickey Alpert said last week. "This validates it."

Alpert and other industry observers believe the SES announcement will help the two incumbent DBS companies receive government approval for their merger, as it represents potential competition in the satellite space.

"We welcome the competition," EchoStar spokesman Marc Lumpkin said Thursday. "And the FCC's decision on Northpoint shows there's room for other entrants in the pay-television market."

EchoStar has yet to decide whether it would bid for the MVDDS spectrum at auction because the company last week had not seen the FCC report on spectrum sharing, Lumpkin said.

NEEDS FCC OK

To deploy its satellite service in the U.S., SES would require FCC approval for the spectrum, for which the company has already received licenses from the government of Gibraltar, SES said Thursday in a press release. But SES does not plan to invest in the satellites needed until it gets the FCC nod.

If the FCC approval process is slowed down by opposition and takes several years to conclude, the service date could be pushed back to 2007 and hurt SES Americom's ability to compete, Alpert said.

Alpert also questioned whether SES has a solid business model for its proposed service. SES said it has no plans to offer any retail services directly to consumers, but would set up its Americom2Home platform so that a variety of content providers can make their pitches directly to consumers who have a small-dish system. SES ASTRA, a sister company in Europe, uses a similar approach.

Monica Hogan contributed to this report.

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