XM Satellite Radio will spend nearly $200 million on wireless spectrum licenses in 15 of the top 20 U.S. markets, the company announced after Wednesday’s closing bell.
The nation’s No. 1 satellite radio service agreed to acquire WCS Wireless L.L.C., which controls 10 megahertz of spectrum in the 2.3 GHz range, adjacent to XM’s existing spectrum position. XM will finance the deal with 5.5 million shares of common stock.
The acquisition, which is expected to close by the end of the year, gives XM licenses in markets such as New York, Los Angeles, Chicago and San Francisco, covering 163 million potential customers. XM will pay about 12 cents per megahertz pop, according to Ric Prentiss, director of telecommunications services research for Raymond James & Associates.
The company hopes to expand its offerings to include video and data services over the new frequencies. While XM declined to disclose plans, it said the new spectrum could be used to target specific ethnic and geographic markets with localized information such as traffic reports.
XM competitor Sirius Satellite Radio Inc. is also working to launch video services, announcing a partnership with Microsoft Corp. to provide video to its subscribers by the end of the year.
The satellite radio providers could eventually partner with wireless carriers to offer multimedia services over their own networks. Such services could compete with other networks expected to come online in the next few years, including Qualcomm’s MediaFlo and Crown Castle’s DVB-H mobile video offerings.
“It’s not designed for (cellular use), but could that happen at some point? Yes,” said Chance Patterson, XM’s vice president of corporate affairs. “We’re looking at a wide variety of options of how this would be utilized as a consumer service.”
Wachovia increased its valuation for XM on news of the deal, increasing the company’s stock range from between $24 and $30 to $29 to $35. But investors greeted the news tepidly, with XM stock edging upward only slightly in morning trading on the Nasdaq. By mid-day Thursday, XM shares were trading at $35.80, increasing half a percent from Wednesday’s close.
