Southland Firm Spotlights FCC Auction Woes : Telecom: Failure of Sun Valley company and others to ante up money for interactive TV licenses casts cloud on bidding process.

Horses roam the ramshackle Sun Valley, Calif., property that is listed as the address of Interactive America Corp., but there is nothing to indicate the presence of a company prepared to launch a pioneering new television service.

Interactive America was the second-largest bidder in the recent Federal Communications Commission auction of interactive TV licenses, but it failed to submit its $1.37-million down payment on time.

In the one-page application required to take part in the FCC auction, Interactive America identified itself as a small business in which a woman held a controlling interest--and thus it qualified for a $3.3-million discount on the $17 million it bid for 15 separate licenses last month. But the woman’s identity has not been revealed, and company President Christopher Pedersen refused to provide any details on the company’s history or financing.

Interactive America is not the only one of the bidders to miss the payment deadline for the interactive TV licenses, which will be used for a new wireless service that will allow viewers to respond to what they watch on television.

The top bidder, Commercial Realty St. Pete Inc. of St. Petersburg, Fla., also failed to make a down payment--and at one point campaigned for others to withhold money.

Nearly 500 bidders, some whose only asset appeared to be their business cards and the required $2,500 bidding deposit, sought their fortunes in the July auctions. And when it was over, a few bidders--stoked by the gold-rush atmosphere that has marked other wireless technologies such as cellular telephones and two-way paging--may have gotten carried away.

“Unlike some of the other (defaulters) who went into this just to screw up the system . . . Interactive America essentially seemed to have just gotten in over their heads and bid too much,” said Andy Sernovitz, president of the Interactive Television Assn., a Washington trade group.

FCC officials are furious about the missed payments, which threaten the integrity of its new-spectrum auction process. The government once gave away radio frequencies and required them to be used in the public interest, but it has now begun selling licenses for new services to the highest bidder--a process that could raise as much as $10 billion over the next several years.

“I say, don’t get into the auction if you can’t make the down payment,” FCC Commissioner James H. Quello said recently. “I think the people who make bids and don’t have the funds are irresponsible. . . . If they have overbid it’s their fault, not our fault.”

Quello’s remarks were echoed by a lawyer representing other interactive TV license bidders.

“I think it’s important that all bidders carry a responsibility . . . to honor their obligations,” said Thomas A. Hart Jr., a Washington lawyer. “It creates a cloud over the future financial success of the IVDS industry as well as the auction process and the existing procedures at the FCC.”

The mystery surrounding the female owner of Interactive America also underscores potential problems with the FCC’s detailed set of preferences for women, minorities and small businesses. FCC Chairman Reed Hundt has hailed these incentives as an enormous economic opportunity for the so-called designated entities, but the FCC did not screen auction applicants to see if their preference claims were valid.

Pedersen of Interactive America said the company’s owner wished her identity to remain undisclosed. He said that Leslie B. Kinikin, the owner of the Sun Valley house whose name is also listed on the FCC application for the auction as a person authorized to make a bid for Interactive America, is not the owner of the company.

Pedersen said he is not an investor in the company, which he said was formed in June, about a month before the auction. The state Department of Corporations said the company is not incorporated in California, and city records show no Los Angeles business license.

FCC spokeswoman Susan Sallet said bidders were only required to submit a one-page form listing the name of the company, its address and phone number and the names of people authorized to bid. They could check off boxes indicating if the firms are woman- or minority-controlled. Pedersen signed the form, which stated, among other things, that the applicant is “legally, technically, financially and otherwise qualified” to bid.

Sallet said the FCC accepted that information without verification because “we needed to balance the need to make sure you were a serious bidder with the need to keep the auction flexible.” She said bidders were required to submit more detailed information with their down payments, to be followed by an audit.

The fact that Interactive America is not registered as a California corporation and is not licensed to do business in Los Angeles is not illegal. But a company must obtain a Los Angeles business tax certificate before conducting any revenue-generating business in the city, said Don DeBord, chief of the city clerk’s tax and permit division.

Pedersen said Interactive America has not made the down payment that was due Aug. 8 because the FCC has approved only one interactive TV equipment supplier. The vendor, Eon Corp. of Reston, Va., was also a bidder.

Pedersen said that with only one approved vendor, he couldn’t be sure his company could meet the requirement that 10% of the system be built within a year.

10% of its interactive systems within one year.

“We have no problem in making the down payment,” Pedersen said. “We’re trying to be fair. We want (the FCC) to be fair.”

The FCC’s Sallet said those in default will lose the licenses and have to pay the difference between what they bid and the new bid when the licenses are re-auctioned, plus 3% of the lesser bid.