Auction leaves interactive TV's future unsettled

August 17, 1994|By New York Times News Service

As the owner of the Continental Windshield Repair Co. in Baton Rouge, La., Marilyn U. Moore would hardly seem qualified to be a communications entrepreneur. But that didn't stop her from bidding $600,000 recently for a handful of licenses to provide interactive television service over the airwaves.

"I believe that interactive television is the wave of the future," said Ms. Moore, who along with hundreds of other people packed into a Washington hotel ballroom three weeks ago and took an entrepreneurial leap of faith that if the government was holding an auction then there must be something valuable for sale.

"Of course," added Ms. Moore, who won the licenses on behalf of herself and a small pool of investors, "it could ultimately turn out to be a pig in a poke."

Ms. Moore has met the deadline for the 10 percent down payment on her licenses. But uncertainties abound in the wake of the Federal Communications Commission's recent auction of some 300 interactive television licenses, which many bidders apparently saw as a way to grab a stretch of the information superhighway.

The FCC said yesterday that 17 percent of the winners had defaulted on the down payments. Those in default, who will lose their application fees and may have to pay penalties, include the two biggest auction winners, who have said there are too many unanswered questions about what the service is supposed to be and when the necessary equipment will be ready.

Even the FCC, which surprised itself and the communications industry by attracting a total of $215 million in bids from the airwave auction, does not know how -- or whether -- the technology will actually work. And although airwave auctions are brand new, the commission's attitude from the start seems to be: Let the buyer beware.

"If you want to build the information highway through private investment, you have to let private investors make the decisions," said Reed E. Hundt, chairman of the FCC. "We

provide opportunities; we don't provide guarantees."

The FCC has set aside a narrow band of radio-wave frequencies adjacent to Channel 13 on the television broadcasting spectrum. Using these frequencies is supposed to enable television programmers and their viewers to communicate back and forth via a small device attached to a television set.

In reserving the frequencies, the FCC explicitly refused to endorse any particular technology or any particular business model for making money from such a system. Television broadcasters themselves seemed to have generally shunned the auction, leaving the bidding to companies that would operate the wireless networks as a service to sell to broadcasters, their programmers, advertisers and viewers.

At least two companies, the Eon Corp. of Reston, Va., and Radio Telecom and Technology of Riverside, Calif., have developed network technology for interactive systems. Although the two technologies are incompatible so far, each takes a similar approach.

The device would display a list of possible activities on the screen, like the option to order a product being advertised or to compete with other viewers.

Assuming that either of the new technologies works, there are still many uncertainties. Eon, for example, estimates that its type of network would cost about $2 a household to build.

But success depends on solving a chicken-and-egg problem: TV viewers won't buy the devices for their homes unless they are attracted by programming. And advertisers and television producers are unlikely to roll out new shows or interactive advertisements unless millions of people have installed the boxes.

For the licensees, the big question is how soon either of these technologies will be available.

Radio Telecom, with whom Ms. Moore of Baton Rouge intends to do business, will not be ready to ship its equipment until sometime next year.

James Hartley, head of a company called Commercial Realty St. Pete Inc., of St. Petersburg, Fla., who had winning bids totaling $35 million for 20 licenses, said he was surprised when he discovered after the auction that Eon's technology was not yet available. That is why Mr. Hartley, the auction's biggest winner, petitioned the FCC to delay the payment deadline. When the FCC refused to do so, he defaulted.

"All I know is that it's going to take six to nine months before the equipment is ready," Mr. Hartley said. "And that's enough for me to say, I need to wait."

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