The Hill: Northpoint's Quest for Spectrum Up in the Air

10/1/2003

From: Sam Dealey, 202-628-8517, Mary Lynn F. Jones, 703-244-2368, both of The Hill

WASHINGTON, Oct. 1 -- The following was released today by The Hill:

The Senate and Federal Communications Commission are set to battle over the agency's authority to auction broadcast spectrum, Sam Dealey reports in the Oct. 2 issue of The Hill. Dealey writes, "The fight centers on Northpoint Technology, a company that aims to provide terrestrial wireless services, such as Internet and cable television, over frequencies traditionally used by satellite providers." While the company "claims it is being unfairly forced to purchase what its competitors were given free, "Northpoint's detractors say it has "neither the means nor the intention to provide wireless services" and its investors are "trying to game the system and make a fast profit."

---

Northpoint's quest for spectrum up in the air

By Sam Dealey

Just weeks after the Senate blocked looser media ownership rules, lawmakers are gearing up for another bruising battle with the Federal Communications Commission (FCC) over the agency's authority to auction broadcast spectrum.

The fight centers on Northpoint Technology, a company that aims to provide terrestrial wireless services, such as Internet and cable television, over frequencies traditionally used by satellite providers.

The FCC has ruled that Northpoint must bid on the spectrum space in an open auction. The company claims it is being unfairly forced to purchase what its competitors were given free.

"Every day that we're not in business is a good day for satellite and a bad day for consumers," said Toni Cook Bush, Northpoint's executive vice-president.

The company's detractors say Northpoint has neither the means nor the intention to provide wireless services, and that its politically connected investors -- including relatives of Sen. Joe Biden (D-Del.), former and current lawmakers, and major Democratic moneymen -- are trying to game the system and make a fast profit.

"I think they've been pretty consistent in alienating just about everybody," says Kirk Kirkpatrick, president of MDS America, a Northpoint competitor in terrestrial wireless systems that hopes to participate at auction. "Basically, it just starts to smell bad."

"We have a strong list of bipartisan supporters, mostly in rural areas," said Bush. "I hope we haven't reached a point in this country where whom you're affiliated with determines your ability to provide a service."

The fight has spilled over into the Congress, where the company's powerful champions in the Senate -- notably Appropriations chairman Ted Stevens (R-Alaska) -- are trying to force the FCC to grant the spectrum space for free through a variety of measures, including the pending Commerce-Justice-State appropriations bill.

Equally powerful, however, are Northpoint's opponents, including House Commerce chairman Bill Tauzin (R-La.), the GOP leadership in both chambers, and the Bush administration.

"To exempt Northpoint from paying auction fees is absolutely wrong and I would oppose that in any way I can," said Tauzin.

"It just makes me nervous to see the Senate help a player in any of this," said James Gattuso, a research fellow on regulatory policy at the conservative Heritage Foundation and a former deputy chief of policy at the FCC, "because you just know it's not going to be done intelligently and it's not going to be done fairly. The more you have subjective political judgment involved, the more gaming that will go on and the less important the consumer becomes," he added.

However the issue plays out, both sides acknowledge that Northpoint has pulled out all the stops to achieve its goal.

In the early 1990s, Saleem Tawil, a Texan telecommunications entrepreneur, had an idea. If North American satellite dishes face south to receive wireless cable and Internet signals, why couldn't they also receive signals from the north? They could, of course, but the satellites, which orbit the equator, couldn't be positioned to do such a thing. But what if instead of satellites, towers were built to transmit the signal south?

The transmission range would be decidedly shorter, but building towers is decidedly cheaper than launching a bird into orbit. Towers could be built across the nation, providing cut-rate service to consumers, particularly in underserved rural areas. And from that simple idea of turning dishes to point north, Northpoint was born.

"It was so simple it makes you want to slap yourself on the forehead," said Adam Thierer, director of telecommunications studies at the libertarian Cato Institute. Northpoint filed its application for a broadcast license with the FCC in 1994.

From the start, Northpoint was a company with political clout. In addition to the largely apolitical Tawil and his wife, Carmen, Northpoint is chaired by Sophia Collier, once treasurer of the New Hampshire Democratic Party and now the head of an investment company. The company's founders also include Katherine "Chula" Reynolds, an investor and heiress of the prominent King Ranch family in Texas, and J. Bonnie Newman, executive dean of Harvard's Kennedy School of Government and a top aid to the first President Bush.

But one of Northpoint's brightest stars is Toni Bush, a former senior counsel to the Senate Commerce Committee's communications subcommittee, chaired by Daniel Inouye (D-Hawaii), a former senior partner and communications lawyer with Skadden, Arps, and stepdaughter to Democratic kingmaker Vernon Jordan. In 1993, Bush was a leading contender to head the FCC in the Clinton administration.

For all its starpower, however, Northpoint had trouble at the FCC. The skeptical agency had never dealt with an application to broadcast terrestrially in frequencies dominated by satellites. What's more, Northpoint's application had traditional satellite providers running scared. Wireless Internet and television service from terrestrial providers can be had for about $40 a month, half of the current cost of using satellite providers.

Loath to lose what the Manhattan Institute's Thomas Hazlett estimates to be $2 billion a year, the satellite companies tried to block Northpoint's application, claiming that the terrestrial transmissions would jam their own signals. After several years of delay, independent testing proved otherwise, and the FCC certified Northpoint fit for auction.

But with this good news for Northpoint came bad news: If the company wanted the spectrum space, it would need to compete for it in an open auction.

In 1999, as Northpoint prepared to bid against seven satellite companies, Congress intervened. The companies would all get their license free. All, that is, except Northpoint.

Known as the Open-market Reorganization for the Betterment of International Telecommunications Act (ORBIT), Congress's intent was to protect satellite companies from sequential auctions in several countries for the same spectrum space. If they were forced to buy their spectrum license in the U.S., the thinking went, then they might be forced to purchase licenses in other countries as well. Add to those auctions the costs of developing and deploying a satellite in the first place, and the enterprise becomes prohibitive costly.

From Northpoint's vantage point, the law merely rewarded its competitors while forcing it to pay for spectrum use.

That's when Northpoint turned to Congress, requesting that it compel the FCC to award terrestrial licenses without auction. "The satellite companies are the ones that turned this into a legislative debate," said Bush. "We were not the ones who went to Congress to get an exemption from auction first."

"Northpoint had a point at one point," said Tauzin. "Their argument initially was that they weren't properly being considered by the FCC; that competitors were blocking their consideration.... And Northpoint was correct.

"They were entitled to have a chance to get licensed and I fought for them to have that right. But the FCC ruled that they were subject to the auction provision just like every other competitor."

If the auction proceeds, telecommunications specialists predict the bidding could exceed $100 million. "A small start-up like Northpoint is going to lose at auction," said Northpoint publicist Adam Dubitsky.

Northpoint's gambit for free spectrum space is bitterly opposed not just by satellite competitors, but by MDS America, another terrestrial broadband company eager to dominate the market.

The rivalry between Northpoint and MDS is intense and personal. Northpoint's allies charge that MDS stole its patented technology -- the suit, filed in 2002, is still pending -- and that the company is shadily un-American.

"Despite its patriotic name, it's a French-Kuwaiti concern owned by a Kuwaiti sheik who's been under investigation for a $130 million shakedown of the Kuwaiti government," said Dubitsky.

Kirkpatrick retorted that the matter is 15 years old and has been thrown out of Kuwait's courts three times. "The point is, what the heck does Kuwaiti politics have to do with our service in the U.S.?" he asked.

He contrasts his own parent company, which has successfully established terrestrial systems in Europe, North Africa and the Middle East, with Northpoint's, which has yet to implement its system.

"My executive vice-president is an engineer," he said. "Their executive vice-president is Vernon Jordan's stepdaughter. Think about it."

But Northpoint's opponents are emphasizing more than Bush's familial relationship to Jordan.

Bush denies that political influence was a factor in distributing Northpoint's local franchises, but its 1999 FCC license application reads like a Who's Who in Democratic politics.

"The concept behind our service is that we would need people in our local markets to help build out those systems, to deal with maintenance and installation," she said. "The idea was to identify people in those markets who would do that. And the other thing is that people in those markets know what those markets need."

In Atlanta, Los Angeles, Louisville, New Orleans and Kansas City, David Salzman and his wife Sonia own Northpoint franchises. The Salzmans are well-known Hollywood figures, where he produces TV and contributes to Democratic causes and candidates.

In New York City, comedienne Lily Tomlin and her longtime collaborator, Jane Wagner, own the bulk of the franchise.

In Fort Smith, Ark., the franchisee is listed as Betsey Wright. Wright was former chief of staff to then-Gov. Bill Clinton and a key campaign strategist.

Relatives of Biden, including his son, daughter and sister, own franchises in Pennsylvania. (There is no evidence that Biden has pushed Northpoint's cause.)

Other franchisees include former Reps. Louis Stokes (D-Ohio) and Samuel Coppersmith (D-Ariz.), former Clinton official and DNC Hispanic Caucus chairman Nelson Diaz, Texas state Sen. Rodney Ellis, and tycoon Don Barden. Barden has contributed well over $300,000 to Democrats since the 1996 election cycle. Also in the mix is H.E. "Sonny" Cauthen, a Washington lobbyist who raised at least $100,000 for Gore's 2000 campaign.

Although the overwhelming majority of those names on the 1999 franchise list have Democratic ties, there are rumors that Northpoint has added well-connected Republicans since the 2000 election.

Bush declined to disclose the most recent affiliate list or to confirm whether several high-powered GOPers are franchise owners. But one of those names is Northpoint's lobbyist, Bob Livingston. Through a spokesman, Livingston last week denied holding any equity in Northpoint. The following day, the Financial Times reported that he has a standing offer to become an affiliate.

"Who our affiliates are has nothing to do with where we are today," Bush said. "Any person who lives in a community should be important to that member. And I don't think that Hughes, which is owned by General Motors, is benefited because there are GM dealerships all over the nation. That's just smoke and mirrors. That's not an issue."

While many of the franchisees' connections may have pull on Capitol Hill, they've also aroused suspicions. The fear is that, if awarded use of the spectrum for free, Northpoint will hold its own auction.

"What Northpoint will do, in our judgment, is turn around and re-auction the spectrum privately so that all their franchise owners will be rich overnight," an MDS lobbyist said. "The (U.S.) Treasury doesn't get the money; those investors do."

Bush adamantly denied the suggestion. "No," she said. "We have not spent 10 years at this just to turn around and sell it."

Concern about re-auctioning spectrum, or "flipping," is not a new one. It's one of the chief reasons why auctions are set as the FCC's default policy.

"Auctions expose the opportunity cost of spectrums," said Cato's Thierer. "If you buy something, you're going to want to deploy a system pretty rapidly. If, however, you're given something for free, you're more likely to sit on it, hoard it, or sell it for a quick dollar."

Given that many of Northpoint's public franchise holders seemingly have little experience in telecommunications applications, flipping insinuates itself into almost every conversation about the company. "You're Betsey-goddamn-Wright, I think they'll flip it," growled a House leadership aide.

What's also raising eyebrows is Northpoint's congressional lobbying, which seemed to kick into high gear just after the 2000 presidential election. The sudden lobbying blitz added fuel to charges by Northpoint's detractors that the company was banking on a Gore victory. They believe that in a Gore administration, the FCC might have looked more kindly on Northoint and its franchisees. But once Bush won, their thinking continues, the company realized it would get nowhere with the new administration and turned to Congress instead.

Toni Bush dismisses this idea. "We have been at the FCC since 1994. We've seen several FCC chairmen. The concept that you're going to found an organization and someone's just going to give you a license is nonsense," she said. "We have conducted this effort completely through the process."

Lobbying disclosure forms filed with Congress show what appear to be three distinct periods of lobbying, each more intense and savvy than the previous. In July 1997, for example, when the matter was pending before the FCC, Northpoint hired McDermott, Will & Emery to lobby on its behalf. The contract was terminated nine months later, and the firm was paid less than $10,000.

Beginning in late 1998, when the FCC called for bids for satellite use, but not terrestrial use, of the desired spectrum, Northpoint increased its lobbying presence. "It was the first point Northpoint realized they were going to have a problem" getting a license, said Bush.

Northpoint turned to two large, all-service K Street powerhouses: PodestaMattoon and Preston Gates Ellis & Rouvelas Meeds.

But the real lobbying kick seems to have come around the time of the 2000 presidential election. While Northpoint continued its contract with PodestaMattoon until 2002, it also added a host of new firms -- a trend that continues today.

One of those firms was Akin, Gump, Strauss, Hauer & Feld, signed in October 2000. But more typical was the company's reliance on smaller, boutique houses with targeted influence, particularly with Republicans on the Senate Commerce and Appropriations committees, and with the Bush administration. Some of these contracts spanned only a matter of months.

In September 2000, for example, Northpoint signed Diane Allbaugh, a Washington newcomer and the wife of Joe Allbaugh, head of the Federal Emergency Management Agency and a long-time Bush advisor. Records show Allbaugh has received at least $100,000 in fees.

In January 2001, Northpoint signed the Livingston Group, a firm headed by former House Appropriations chairman and Speaker Bob Livingston (R-La.). In addition to Livingston's clout with congressional purse-holders, the firm's roster includes Chester Lott, son of then Senate Majority Leader Trent Lott (R-Miss.).

In June 2001, the company hired Balch & Bingham's Barbara Olson, an influential conservative and wife of Solicitor General Ted Olson. The contract with the firm was terminated when Olson died in the Sept. 11 attack on the Pentagon.

In May 2002, Northpoint retained Lee Giacometto. Giacometto was chief of staff to Sen. Conrad Burns (R-Mon.), the top Republican on the Commerce Committee's communications subcommittee and a member of the Appropriations Committee.

But the biggest lobbying expense so far has come with Northpoint itself. After seven years of head butting at the FCC, the company finally registered to lobby Congress in February, 2001. Documents show Northpoint's lobbying expenses through last year exceeded $900,000.

At the same time that Northpoint was ratcheting up its lobbying, congressional friends were ratcheting up pressure on the FCC. Documents obtained from the FCC under the Freedom of Information Act show that during 2001, 81 members of Congress -- 16 senators and 65 representatives -- wrote to the FCC on Northpoint's behalf.

This year, Senate Commerce committee members Sununu and Maria Cantwell (D-Wash.) sponsored an amendment to the Spectrum Enhancement Act, and Sens. Mary Landrieu (D-La.) and Kay Bailey Hutchison (R-Tex.) offered a companion amendment in the relevant appropriations bill. Livingston appeared in the packed committee room moments before the vote and held a brief conversation with Stevens. The measure was approved by voice vote.

"Anybody who knew anything about what was going on knew what (that conversation) was about," said a senior Senate GOP aide. Livingston declined to comment.

The pending measures have provoked strong opposition from a variety of influential lawmakers.

"It's an abomination," said Tauzin of the Sununu amendment. "That amendment, if it stays in the spectrum allocation bill, kills the bill. We're not going to bring that bill to the floor with that amendment on it and chairman (Fred) Upton (R-Mich.) and I have made that very clear."

The House and Senate leadership and the White House echo Tauzin's negative views. Indeed, following a similar measure benefiting Northpoint in 2001, the Bush administration stopped just short of calling it a veto offense. "The administration would strongly oppose any amendment that would restrict the FCC's ability to assign, via competitive bidding, spectrum licenses that could be used by terrestrial services," it wrote in its statement of administration policy. "Such a provision would interfere with the efficient allocation of federal spectrum licenses, provide a windfall to certain users, and reduce federal revenues."

Whether Northpoint wins its decade-long quest for spectrum space is far from decided. Despite strong opposition in official Washington, the company also has strong official backing. House aides claim the language adopted by the Senate Appropriations Committee amounts to authorization language, an infraction of the rules that can likely be stripped in conference.

But in the Senate, different views prevail.

"Stevens is an extremely powerful chairman, and I wouldn't say anything is foregone," said the Senate aide, who gave the non-auction spectrum language even odds for inclusion. Either way, it is likely that Washington has not heard the last of Northpoint.