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Some Sirius competition?
Cell phone carriers are eyeing the growing satellite radio market; Sprint launches new service.
April 5, 2005: 6:11 PM EDT
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - Cell phone carriers are looking to give satellite radio operators a run for their money.

Sprint PCS Group, the nation's third-largest mobile phone operator and a unit of Sprint Corporation (Research), has just launched a new Internet radio service that lets them listen not just to music but also to news and talk radio.

The service takes direct aim at the burgeoning satellite radio industry, which is generating a ton of investor enthusiasm.

The satellite radio market has grown from 380,000 subscribers three years ago to more than five million today as the two players, XM Satellite Radio (Research) and Sirius Satellite Radio (Research), have cut deals to install their devices in new cars and lured popular personalities like shock jock Howard Stern away from terrestrial radio.

Subscribers pay $12.95 a month for basic radio services and, in return, get between 120 and 150 channels of mostly commercial-free music.

Now cell phone carriers want a piece of the action.

Last week Sprint PCS began selling a service of 13 channels at a monthly price of $5.95 to its Sprint PCS Vision Multimedia Services subscribers, according to MSpot, a privately-held Palo Alto startup that developed the service and announced the Sprint offering Monday.

The MSpot channels include not just hip hop and 7 other music channels, but also news and talk from Associated Press and National Public Radio, among other content providers.

To get the service, Sprint customers must own one of five multimedia phones and must also subscribe to its monthly Vision plan -- ranging from $15 to $25 a month -- to avoid any surcharges. A Vision plan is in addition to a standard voice plan.

Daren Tsui, MSpot's CEO, says cell phone providers are eager to branch into Internet radio as part of their broader push into entertainment services.

"Consumers have only so much discretionary money to buy entertainment," said Tsui, who co-founded MSpot a year ago. "We're obviously all competing for a piece of that pie."

The battle heats up

Sprint PCS, which has sold an Internet music-only service called Music Choice since late last year, isn't the only cell phone carrier branching into Internet radio. Virgin Radio launched a free music service on its 3G phones earlier this year.

Verizon Wireless doesn't yet offer Internet radio -- and a spokeswoman declined to say when that might happen -- but the country's No. 2 carrier launched in February a new download service called V Cast that offers music videos and other television programs. Sprint's service is similar.

And AOL plans to offer later this year a Web-based radio service as part of a broader push into wireless entertainment. AOL and CNN/Money are owned by Time Warner (Research).

Tsui predicts satellite radio is about to face some stiff competition. Among the key advantages of cell phone radio: unlike satellite subscribers, cell phone users don't have to buy separate hardware to listen. Nor do they receive a separate bill. The $5.95 service fee appears on the Sprint subscribers' monthly bill.

Tsui claims cell phone radio can record programs and the sound quality is just as good as satellite radio. MSpot is developing a new version of its service that will be available on most Sprint phones by the end of May.

"I do believe we have certain characteristics that make us more appealing than satellite services," said Tsui.

But some technology analysts doubt that XM and Sirius Satellite have anything to worry about.

Steve Mather, an analyst with investment banking firm Sanders Morris Harris, says satellite operators are on track to have upwards of eight million subscribers by year end and have huge advantages not just because of the variety of channels but also because all the big car makers have agreed to install their devices in their vehicles.

"Given the momentum and the attributes that satellite radio has, it's not going to be easy to encroach on XM or Sirius and still be profitable," said Mather, whose firm does not own stock in or do investment banking business with either satellite radio provider.

Kit Spring, an analyst with Stifel, Nicolaus & Company, agrees that cell phone operators won't dent the satellite radio market anytime soon. He says the wireless phone companies don't offer enough content or have sufficient bandwidth to compete with Sirius and XM.

But, he added, that will change when newer, more advanced cell phones come to market in a few years.

"I do think that long-term, over a five-to-10-year period (cell phone radios) are very real threats," said Spring.

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