Copyright 2004 Investor's Business Daily, Inc.

Investor's Business Daily

January 27, 2004 Tuesday

Charles Dolan surprised Wall Street last year by revealing plans to spin off a satellite TV service along with three cable channels from Cablevision Systems Corp. Dolan, who controls Cablevision, is at it again.

Dolan owns 49 percent of a company that's the top bidder in a federal auction of radio spectrum intended for video and data services. That fact was revealed for the first time in a Jan. 20 filing with the Federal Communications Commission that amended the ownership structure of a company called DTV Norwich LLC. The company has bid more than $84.6 million for spectrum licenses as of Monday.

George Blumenthal, former chairman of U.K. cable firm NTL, owns the other 51 percent of DTV Norwich.

DTV's link to Dolan and his fledgling satellite TV service has stirred industry speculation of a possible new competitor in the pay TV and, possibly, Internet services fields vs. satellite and cable firms.

The airwaves now being auctioned off by federal regulators are for use in ground-based wireless systems that carry TV or data. They're called multichannel video distribution and data services. MVDDS offers alternative pay-TV services that aren't cable- or satellite-based.

Dolan launched Rainbow DBS, which offers the Voom satellite TV service, in late October. Voom competes with DirecTV, now owned by News Corp., and EchoStar Corp. Rainbow DBS, though, has less radio spectrum than DirecTV or EchoStar. The ground-based spectrum could help Dolan compete.

"Voom needs to find more spectrum," said Jimmy Schaeffler, head of research and consulting firm Carmel Group. "They're also looking at a terrestrial opportunity to deliver things that satellite can't, such as two-way Internet services," he added.

Besides his stake in DTV, Dolan owns 41 percent of Cablevision and 100 percent of Rainbow DBS, says the FCC filing. Bethpage, N.Y.-based Cablevision is the nation's No. 5 cable TV firm, with 3 million subscribers.

Analysts expect Cablevision to spin off Rainbow DBS in the second half of the year after a Securities and Exchange Commission probe into expense accounting at its cable channels is completed.

Cablevision hasn't disclosed how many subscribers have signed up for Voom. It might do so when it reports fourth-quarter earnings March 2.

Voom plans to charge customers $39.95 a month starting Feb. 1. Charter subscribers haven't yet had to pay. Voom has focused on providing channels in an ultrasharp, high-definition format.

DirecTV, EchoStar and Cablevision's Voom service all use earth-orbiting satellites to beam programs to small antennas, called dishes.

Ground-based technology offers a new alternative. Northpoint Technology Ltd. first proposed using a ground-based technology to compete with satellite TV firms.

Started in 1996, Northpoint lobbied Congress and the FCC to get a national license, along with spectrum, for free. Northpoint said its spectrum-sharing technology didn't interfere with signals of satellite TV firms.

In April 2002, the FCC decided to require that companies buy spectrum rights in an auction. Northpoint lost a legal fight to stop the auction last year.

Northpoint is not taking part in the FCC auction, which started Jan. 14. Sophia Collier, a Northpoint co-founder, did not return a phone call.

EchoStar, which opposed Northpoint's technology because of interference issues, could benefit from the auction as well. EchoStar holds a 49.9 percent stake in another auction bidder, LLC. has bid more than $42.4 million in the auction. As of Monday, DTV Norwich was the high bidder in New York, Los Angeles, San Francisco, Chicago, Philadelphia and Tampa, Fla. was tops in Boston; Seattle; Washington, D.C.; Portland, Ore.; and Atlanta.

EchoStar spokesman Steve Caulk declined to comment too much on the auction. "Right now, we're exploring lots of different ways that we could supplement our (video) services with high-speed Internet," he said.

Another possibility, analysts say, is that EchoStar could acquire the MVDDS licenses in order to prevent rivals from acquiring the spectrum. In that scenario, EchoStar wouldn't be planning to launch MVDDS-based services itself.

EchoStar is also a minority investor in start-up WildBlue, which plans to launch a satellite-based Internet service in the second half of 2004. Industry sources, though, say DirecTV also might be interested in teaming with WildBlue.

Another of WildBlue's investors is John Malone's Liberty Media Corp. Liberty owns 9 percent of the voting interest in News Corp., which bought DirecTV in December. Rupert Murdoch controls News Corp.