Published: July 14, 2005, 6:09 AM PDT

By Reuters

TrackBack Print E-mail TalkBack

XM Satellite Radio has agreed to buy privately held WCS Wireless in a stock deal worth $198 million, giving it additional frequency to broaden its offerings into such areas as video.

Under the terms of the deal announced Wednesday, the nation`s No. 1 satellite radio provider offered 5.5 million XM shares for the assets of WCS Wireless.

WCS Wireless`s primary assets are its wireless spectrum licenses that on average include 10 megahertz in the frequency bands adjacent to XM`s satellite radio service and are in areas covering 163 million people throughout the United States.

XM, which has 4.4 million subscribers, said the deal will enable it to expand into multimedia subscription services, like video and data offerings, through new frequencies and products, as well as integrating them with XM`s current satellite radio offerings.

``They now have a bigger pipe to play with,`` said Roger Entner, analyst with Ovum technology research firm.

In an interview, XM Chairman Gary Parsons said the acquisition should help his company more readily find a compelling business model to deliver video to its customers.

``This essentially doubles the amount of capacity we`ve had available and while we`ve demonstrated video, we had not seen a compelling business model for this going forward. This could mean we have a compelling business case,`` Parsons said.

He said that in order to launch an attractive video model previously, XM would have had to hurt its existing audio service because video required so much frequency.

``Right now, as far as a product building strategy goes, there clearly could be a standalone video product over either frequency,`` he said.

XM said it plans to announce more details on the use of the additional spectrum in the future. XM has 12.5 megahertz of frequency under its satellite radio license. The deal should close before year`s end, subject to regulatory approval.

``I`ve always said satellite radio will be more than just radio. This deal allows XM a tremendous amount of freedom without jeopardizing the core music offering,`` said April Horace, analyst with Hoefer and Arnett.

The WCS frequencies are wireless communications frequencies that are currently not being utilized for any consumer service and were acquired by WCS on a market-by-market basis, XM said.

XM competes with Sirius Satellite Radio in the emerging pay-radio market. Sirius also recently announced an expansion into video.