XM sees new portable radios in '08

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NEW YORK -- XM Satellite Radio Holdings Inc. plans to introduce new portable radios next year and expects car buyers to account for more than 65% of new subscribers by the end of 2007, its interim chief executive said in an interview.

Nate Davis, who assumed the CEO role in August, said XM would grow because of automobile subscribers, new devices and aggressive marketing partnerships even if its planned sale to rival Sirius Satellite Radio Inc. fails to pass U.S. regulatory muster.

"Our strategy will be that we need to partner with more people (such as) portable navigation devices and cell phone providers," Davis told Reuters late Friday. "Sirius is not the center of my world if there is not a merger."

The company will focus on boosting cash flow and turning a profit, he added.

Sirius and XM, which in February agreed to merge, expect to complete the deal by the end of the year. But first the pact, which the traditional radio broadcasters have opposed, must get the approval of U.S. regulators.

"This is not a slam dunk merger," Davis said. "This is one of those that will be controversial. But we think on the merits, it will be approved in the end."

Davis, a telecommunications industry veteran who had previously been XM's chief operating officer, assumed the top spot after longtime CEO Hugh Panero said in July that he would step down months earlier than anticipated.

Some analysts speculated at that time that XM needed a new CEO to set goals and secure deals in case the merger fell through.

"This is a business that has never made money, and we have lost billions over the years," Davis said. "Given that we've got 8.5 million subscribers and growing, and over $1 billion in revenue, my focus will be to become a profitable company not just a high-growth company."

Regulators from the FCC and the Department of Justice are expected to study the deal and give their opinion in coming weeks.

Analysts' views on the chances of approval have been mixed. Last week, William Kidd of Wedbush Morgan said a number of recent developments support a more positive outlook, such as pricing plans that eased concerns of a monopoly raising prices, and public support for a merger.

"However, we still think the merger still faces notable challenges," Kidd said in a note to clients, putting the chance of approval at less than 50%.

Critics, chiefly representing terrestrial radio, argue the deal would create a monopoly, but XM says it would allow the relatively small satellite radio industry to compete with entertainment options developed by far more powerful companies.

"Bill Gates ... has now come back to push the Zune media player," Davis said, referring to Microsoft Corp.'s digital device. "Apple and Clear Channel are partnering on HD Radio products for the holidays, and now the iPod has gone into the cell phone business. The market is getting more and more audio entertainment, and we are just one."

While XM sees Apple's iPod as competition, it has not introduced any new portable radios since early 2006, focusing instead on the car market, where partners such as General Motors and Toyota are producing hundreds of thousands of autos equipped with satellite radios.

Davis said XM expected more than 65% of its gross subscriber additions to come from customers buying cars by the end of 2007, compared to the 50% range at the beginning of the year.

"We are in the middle of a ramp right now -- we just started some of the manufacturers this year," he said. "By the time we get to the end of the year, there will be a lot more manufacturers' cars with satellite radios in them."
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