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Thursday, August 10, 2006

Sirius and XM: Can The Cellphone Business Save Them?

Stocks: (XMSR)(SIRI)(S)

XM and Sirius have both experience stock collapses that rival almost anything in the market over the last two years. XM has dropped from almost $37 to $10 over the last 12 months, and Sirius has fallen from nearly $8 to below $4.

The concerns about the two companies center around a slowing growth in subscribers, increased churn in their customer bases, and balance sheets that are awash in debt as the companies try to leverage their way to profitability. New WiMax technology may also make portable music and radio products available in a way that was not contemplated a year ago.

Perhaps the cell phone industry is riding to the rescue. Alltel, the fifth largest cell company in the US, has annonced the it will offer 20 channels of XM on its phones. The company will charge about $8 a month for the service. This allows XM to receive revenue without adding costs of programming or marketing, a relief for a company that pays plenty for both.

Sprint has signed a similar agreement with Sirius.

It is too early to say what kind of revenue these deals will bring to the satellite phone companies or whether similar deals are available with other cell companies.

However, any partnership that gives the two companies access to a new channel for programming that brings in revenue at very little cost is certainly welcome.

Douglas A. McIntyre can be reached at He does not write about companies in which he owns securities.

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