Edition: U.S. / Global

COMPANY NEWS; A Warning By F.C.C. On Auction

Published: August 6, 1994

The Federal Communications Commission's experiment in auctioning off the nation's airwaves took another surprise twist today, as the agency found it necessary to warn recent winners not to renege on their obligation to pay for more than $200 million worth of licenses for interactive television.

The F.C.C., responding to a potential bidder revolt, told the dozens of auction winners that if their 10 percent down payments were not received by the deadline on Monday the commission would impose financial penalties. The F.C.C. issued its warning after a winner of 20 regional licenses worth $40 million sought a 60-day extension of the deadline and faxed a letter to other winners urging them to seek similar extensions.

"The commission has not and does not intend to change its deadline," the F.C.C. said in a statement. "Bidders not submitting their full down payment by the required deadline will be considered to be in default and the licenses will be reauctioned." Penalties for Defaulters

Under the F.C.C.'s auction rules, those who fail to make the down payments by Monday will forfeit their auction-application deposits of $2,500, pay a penalty of 3 percent of the bid price for each license and pay the F.C.C. any difference between the original bid and the selling price at the subsequent auction, if the new price is lower.

This latest development in the F.C.C. auctions underscores the new territory the Government is treading into as it auctions airwave licenses for the first time. A week ago the F.C.C. surprised the communications industry and itself with the apparent financial success of its auctions, in which bidders pledged $216 million for more than 600 interactive television licenses and -- in a separate contest -- a total of $617 million for 10 advanced-paging licenses.

The advanced-paging licenses, which sold for as much as $80 million each and were won by some of the richest companies in the paging and cellular telephone industries, were not at issue in the F.C.C.'s warning today. Instead, the agency directed its remarks to the many smaller companies that were winning bidders for the less valuable interactive television licenses. These licenses sold for only a few million dollars each in even the largest metropolitan markets.

Investing in the licenses has been seen as fairly speculative because the technology has barely been tested and there is no certainty of a market for the services.

The systems are seen as extensions of current broadcast television, in which viewers would use special set-top boxes and remote-control devices to order products from home-shopping services, take over-the-air college courses and indulge in various other activities requiring two-way communication with television sets. But cable television and telephone companies are planning interactive systems that would not necessarily use the systems planned by the new license holders.

On Wednesday, a winner of 20 of these licenses, Commercial Realty St. Pete Inc., based in St. Petersburg, Fla., faxed a letter to many of the other winners, encouraging them to join Commercial Realty in asking the F.C.C. to extend the down-payment deadline.

The letter's rationale for the delay was a bit murky. It referred to "some very disturbing discoveries" and seemed to suggest that the Eon Corporation of Reston, Va., would be unable to supply the industry with enough equipment to meet the F.C.C.'s requirement that licensees have their networks operating within a year. So far, Eon is the only supplier whose network equipment has been authorized by the F.C.C. for the new services.

"I don't understand the whining," said Michael Sheridan, the president of Eon. "To expect an overnight supply is unreasonable." Mr. Sheridan said that Eon's own investors had purchased seven licenses at the auction and intended to make their down payments on Monday.

Gloria Borland, president of Gloria Borland Media in Washington, was a losing bidder, and she expressed little sympathy for bidders trying to get extensions.

"There were a lot of speculators there who totally inflated the price and now they've got bidder's remorse," Ms. Borland said. "My partner and I are both African-American women, small investors. If these big boys who capped us out get an extension, that's ridiculous. We played by the rules." Minority-Owned Bidders

Like Ms. Borland's company, and about 90 percent of the other bidders at the interactive-television auction, Commercial Realty registered as a "designated entity." This was an F.C.C. category that allowed small businesses and those owned by women or members of minorities to pay 25 percent less than their bid price, if they won.

The chief operating officer of Commercial Realty, James C. Hartley, is a white male, according to Kellie Boyle of Stackig Advertising and Public Relations, whom Mr. Hartley retained this morning to respond to reporters' calls about his effort to seek an F.C.C. extension.

Ms. Boyle said Mr. Hartley had acquired Commercial Realty while it was in bankruptcy proceedings last year, and she described it as "a shell corporation" for American Interactive, a company whose majority stockholder is a woman. 'Not a Ringleader'

Ms. Boyle said Mr. Hartley had ceased his efforts to organize a movement to extend the down-payment deadline and had faxed the F.C.C. a letter late today informing the commission that his company would make the required down payment on Monday "He is not a ringleader of any effort," Ms. Boyle said. "When the F.C.C. told him to stop, he stopped."

Robert Pepper, chief of the F.C.C.'s office of plans and policy, would not discuss Mr. Hartley specifically today. But he said that "the commission will not tolerate any abuse of the process."

Winners are required to keep their licenses for at least a year before trying to sell them. But in the bidding frenzy a week ago, some investors might have lost sight of that rule, according to people who took part in the auction.

"A lot of people thought you could buy these and flip them -- you know like people flip real estate," said Elizabeth L. Clark, whose company, Red Hot Radio, of Alexandria, Va., won three licenses for a total of $225,000. "There were a lot of heavy bidders who didn't know what they were buying."