By John Quale, Brian Weimer, and John Beahn

The Federal Communications Commission (FCC) recently completed the auction of 192 Multichannel Video Distribution and Data Service (MVDDS) licenses, raising a total of $119 million from 10 winning bidders. Consisting of 500 MHz blocks of unpaired spectrum in the 12.2-12.7 GHz band, the MVDDS licenses reuse spectrum already allocated to direct broadcast satellite (DBS) operators. Instead of relying on satellites, however, MVDDS signals will be delivered terrestrially through ground-based transmitters to provide video or high-speed data services. The auction also brings some measure of closure to a contentious six-year proceeding at the FCC regarding MVDDS’ reuse of DBS spectrum–though an appeal of the FCC’s action is still pending.

MVDDS was originally proposed by Northpoint Technology Ltd. in a March 1998 petition for rulemaking. Northpoint’s service concept was relatively straightforward: given that all DBS dishes in the United States must face south to receive the satellite signal, Northpoint would transmit Ku-band signals into receive dishes pointed north, thereby avoiding interference with DBS operators according to Northpoint. In addition to its petition for rulemaking, Northpoint also filed applications at the FCC seeking MVDDS licenses in all designated market areas (DMAs) in the United States and free access to the spectrum to implement its proposed service. The consolidated proceedings continued for several years with MVDDS proponents and DBS operators engaged in a contentious debate over the interference potential that MVDDS operations would have on DBS operators’ satellite-delivered services. In a November 2000 ruling, the FCC authorized MVDDS operations, concluding they would not pose a significant interference risk to incumbent DBS operations. Throughout the proceeding, DBS operators also vehemently opposed Northpoint’s request for free access to the DBS spectrum. In April of 2002, the FCC denied Northpoint’s request for such free access and set the spectrum for auction to the highest bidder. Throughout 2003, Northpoint unsuccessfully lobbied Congress to include an amendment to the Commerce, Justice and State appropriations bill granting it free access to the MVDDS spectrum. Northpoint has appealed the FCC’s 2002 denial of its applications for licenses in all DMAs nationwide and is asking the court to void the results of the auction–in which Northpoint declined to participate–claiming that the FCC lacked the authority to conduct the auction. Northpoint’s appeal is currently pending before the U.S. Court of Appeals for the District of Columbia.

The FCC originally had envisioned that MVDDS operations would compete against incumbent cable and DBS operators by providing an alternate multichannel video programming provider. A review of the successful bidders, however, indicates that existing DBS operators highly value the spectrum themselves. DTV Norwich, a joint venture between cable operator Cablevision and George Blumenthal, former chairman of U.K. cable operator NTL, was the highest bidder with $85 million pledged for 46 licenses, including licenses in eight of the top 20 markets. Through its Voom DBS affiliate, Cablevision provides more than 100 channels of video programming to subscribers with a focus on high-definition content. DBS giant Echostar also participated indirectly in the auction by providing financial backing for South.com, which bid $28 million for 37 licenses, including those covering Atlanta, Boston, Dallas, and Washington DC. Early MVDDS proponent MDS America won the most licenses, bidding $4 million for licenses in 60 rural markets. (Although the FCC had anticipated auctioning 214 MVDDS licenses, roughly one for each TV market in the country, there were no bids for 22 of the licenses after 49 rounds of bidding.)

Despite previous assertions by DBS operators regarding the interference potential from MVDDS operations, industry observers have suggested that both Cablevision and Echostar could use the spectrum to supplement and expand their existing satellite-delivered DBS services. Indeed, some analysts have speculated that Echostar may be able to deliver local signals to all 210 TV markets with the addition of the MVDDS spectrum. (Echostar currently offers local channels in approximately 100 markets.) Others have opined that the DBS operators could use the MVDDS spectrum to offer broadband services to their subscribers.

While the MVDDS proceeding presented many challenging legal issues (some of which will not be finally resolved until Northpoint’s appeal is acted upon), it represents another step forward in the FCC’s new approach to spectrum management: permit companies to share spectrum whenever possible. Once implemented, the MVDDS service may help to answer the larger question of whether the FCC’s new spectrum management policies are efficiency-enhancing or just a formula for harmful interference.

John Quale, Brian Weimer, and John Beahn are attorneys in the Washington, DC, office of Skadden, Arps, Slate, Meagher and Flom LLP. Quale’s email address is [email protected]; Weimer’s email address is [email protected]; and Beahn’s email address is [email protected].