COMPETITORS RALLY IN RACE TO CONTROL
RADIO VIA SATELLITE IN NEXT MILLENNIUM
In the race to launch and operate a digital audio radio service (DARS) satellite system, victory depends on obtaining the use of
critical spectrum.
A new consortium of 10 wireless communications service (WCS) groups submitted its satellite license and request for spectrum to
the FCC Nov. 13. The entity was formed following the commission's 1997 ruling to auction key spectrum that originally was
carved out of an existing allocation implemented by Congress for digital audio radio services (CT, May 5, 1997).
Now WCS Radio Inc. is seeking FCC approval to launch two geostationary satellites to broadcast DARS signals that could put
them in the running alongside competitors XM Satellite Radio Inc. of Washington and New York-based CD Radio Corp.
[CDRD].
WCS Radio's birds, to be located at 82.5 degrees and 118 degrees W. would provide coverage to the continental United States,
said John Mason, vice president-business development for WCS Radio. He expects the FCC to approve the satellite project
within a few months. WCS Radio has accepted a proposal by Redondo Beach, Calif.-based TRW Satellite Division to
manufacture the two DARS birds.
But with approved satellite radio broadcast licenses from the FCC already in hand, both XM Satellite Radio and CD Radio are
planning to offer service by 2000.
Steve Blum, president of Santa Monica-based satellite consulting firm Tellus Venture Associates, said the key to the success of
satellite radio is universal distribution.
"It looks like CD Radio is going to be first to market, assuming they get their birds up in time for the year 2000 Christmas selling
season," Blum said. "It looks like XM is not going to be fully operational by 2000 in terms of their retail element not being in place,
which will give CD Radio a certain edge."
Blum said that CD Radio's strong business and marketing plan have strengthened their lead over XM, which has added key
executives in recent months to step up their progress.
"CD Radio has a good business plan and has put a lot more information public, but XM has made key announcements lately in
terms of their consumer manufacturers," Blum said. Those announcements are critical to XM's success, he added.
XM changed its name from American Mobile Radio Corp. (AMRC) and launched a new advertising campaign in October to
promote its digital audio radio service. The company signed agreements last week with radio manufacturers Alpine Electronics,
Inc., Pioneer Electronic Corp. and the Sharp Corp. to manufacture and distribute XM-capable radios and audio systems for
the U.S. market for its multichannel, satellite-delivered digital radio service. In addition, car radio manufacturer
STMicroelectonics [STM] will design, build and market computer chips to process the digital signal.
"These are the first announced U.S. manufacturing agreements for satellite radio," said Hugh Panero, president and CEO of XM.
"First, there was AM, then FM and, with the help of these companies, we will offer XM in the year 2000 and together
revolutionize radio."
Alpine and Pioneer will design, build and distribute XM radios to the automotive industry, while Sharp will provide XM audio
systems for the home market. All systems will receive AM, FM and XM broadcasts as well as possess features such as CD
players.
"XM has a different marketing strategy than CD Radio, aimed at targeting home and car consumers with a focus on adding value
to their programming, such as broadcasting music channels with a lot of personality and production elements similar to a morning
talk show," Blum said. "CD Radio will offer a plan based on little to no talk."
With programming agreements with USA Today, Business News Radio, Heftel Broadcasting Corp., Salem
Communications Corp., AsiaOne and C-Span Radio in the bag, XM is expected to begin offering up to 100 satellite radio
channels via three direct-broadcast satellites, built by Hughes Space and Communications to be launched in 1999.
Two HS-702 birds will operate in geostationary orbit, positioned at 115 degrees W and 85 degrees W. Each customer can plan on
shelling out about $200 for the receiving equipment $10 for the monthly subscription fee.
...Competitor CD Radio Tunes In With Soaring Stocks
Rival CD Radio also continued its upward climb when Apollo Management L.P. last week committed to purchase up to $200
million of CD Radio's newly-issued preferred stock. Apollo's investment caused CD Radio's stock to jump $3 to $37.875 last week
and closed at $36.4375 Monday (11/23).
Apollo, led by New York billionaire Leon Black, initially will acquire $135 million of stock. It may also purchase an additional $65
million prior to Sept. 30, 1999. The junior convertible preferred stock has a 9.2 percent annual dividend and is convertible into
common stock at a price of $30 per common share.
The transaction, expected to close by the end of December, boosted CD Radio's financing to $900 million of the needed $965
million it needs to build its system. Apollo's commitment follows oil baron Sid Bass' investment of $100 million in October. Since
then, CD Radio's stock price has risen by more than 24 percent.
CD Radio expects to beam 50 channels of commercial-free music, along with 50 channels of news, sports and entertainment for
$9.95 per month.
CD Radio plans to launch service in the second quarter of 2000, following the construction and launch of three satellites by Loral
Space and Communications [LOR]. The birds, part of CD Radio's $718 million contract with Loral, currently are under
construction and scheduled to launch during fourth quarter 1999. CD Radio awarded Globecomm Systems Inc. [GCOM] a $2.9
million contract to provide a main origination Earth Station facility in New York City. That Earth station is expected to be
operational by December 1999.
Similar to XM's business model, customers will receive CD Radio's broadcasts through a two-inch satellite dish that would be
affixed to their car's rear windshield. The signal will be relayed to a plug-and-play adapter that fits into a vehicle's existing cassette
or CD slot.
"Overall, these are two distinct companies trying to do similar things," Blum said. (Madeline Couton, CD Radio, 212/899-5000;
Vicki Stearn, XM Satellite Radio, 202/969-7070.)
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