WorldSpace Targets Broadcasting To Italy In Late 2008

While discussions about satellite radio lately have tended to revolve around the proposed merger of Sirius Satellite Radio and XM Radio, other movement is occurring in the industry.

Satellite radio has not yet found a foothold in Europe, but two companies are moving ahead aggressively with plans to launch services within the next few years.

Ondas Media, led by CEO Jacinto Palacios, the former CEO of Hispasat, recently detailed the growth opportunities which have inspired Madrid-based Ondas to launch a pan-European satellite radio service providing approximately 150 channels of music and entertainment.

If CEO Noah Samara of WorldSpace Satellite Radio has his way, the European satellite radio market will not be a monopoly. Samara believes Ondas will find the dealings difficult in Europe – describing the "insurmountable regulatory issues" to be overcome – he detailed WorldSpace’s own plans.

Such entail the company’s possibly launching satellite radio services in Italy in 2008 before expanding into other European markets.

Samara spoke with Mark Holmes about the possibilities amid the broad international satellite radio market and his optimism for WorldSpace’s ability to exploit the possibilities in Europe.

Satellite News: When would WorldSpace launch services in Europe,, and how will you approach the market? Samara: We are very excited about expanding our services throughout Europe, and will begin with Italy where we have already received the government’s approval to launch our portable and vehicular satellite radio services. We expect our Italian service to be available beginning in late 2008. We plan to roll out services on a country-by-country basis. Our target markets include Italy, Spain, Germany, Great Britain, France and Poland.

Since 1999, WorldSpace has offered fixed and portable satellite radio services in Western Europe via one of two satellites we have in operation. We have priority rights throughout Europe, the Middle East and Africa to use the L-band frequencies allocated globally by the International Telecommunications Union (ITU) for satellite radio.

Today, the WorldSpace Satellite Radio Network is comprised of two satellites – one that covers Asia and one covering Europe, the Middle East and Africa. We will be able to support our first European market, Italy, using our existing satellite. A third satellite is already constructed and in storage in a vendor’s facility in France. When launched, this satellite will give WorldSpace expanded capacity to provide a focused satellite radio service to European markets in line with the company’s execution plans. At service maturity, each market will have approximately 50 channels of carefully tailored programming including news, sports, talk, music, navigation, traffic reporting and other services.

WorldSpace has benefited from regulatory priorities established at the international level by the [ITU] and has authorization to use the full 25 megahertz (MHz) of L-band spectrum allocated for global [satellite digital audio radio services]. In Europe, the European Commission has exercised its wisdom by allowing 12.5 MHz for satellite radio services there. We are the sole player using the only harmonized spectrum for satellite radio in Europe. We are already financing the first phases of the development of our project. We are working on pulling together all the pieces for our service introduction to the Italian market.

Satellite News: Where in Europe do you expect satellite radio to have the strongest initial impact? Samara: According to our market research, Italy will be one of the strongest markets for satellite radio in Europe. WorldSpace has made significant progress toward an Italian launch. We have secured the necessary licenses, engaged in-country partners and are in negotiations with major distributors. In addition to our forward momentum in Italy, WorldSpace has very strong data and positive indicators from countries such as Spain, France, Germany and the United Kingdom. We believe [that] in the long term, satellite radio will have a role in all of them.

Satellite News: What Is your content strategy and how will that affect your capital expenditure plans? Samara: Our content strategy is to deliver innovative and diversified programming with seamless national and pan-European coverage. The idea in Europe, for example, is to provide a large bouquet of services, and these will generally be services that may have six [or] seven pan-European channels available on a pan-European basis. There will be 10 [to] 15 national news and entertainment channels in the preferred language format. There will then be 30 [to] 35 commercial-free music channels ranging from old classics to hip-hop, depending on the interests and languages in the region.

Satellite News: Which business models do you think will work in terms selling these services to customers? Samara: WorldSpace prides itself on its ability to deliver the variety of content consumers want, when and where they want it. The most effective way for us to do this is via a subscription service. We have consistently found through our research [that] there is a segment, and not an insignificant segment of the population, that has a strong desire to listen to pure, uninterrupted radio. These people are willing to pay to get this type of programming.

Others are seeking certain types or genres of radio programming that may not be readily available to them. They, too, are willing to pay to get the kind of content they want when they want it. Satellite radio is less of a broadcast service than it is a set of narrowcast services. WorldSpace narrowcasts to a niche market on a channel-by-channel basis, but aggregates its audience on a pan-national, pan-European or a pan-regional basis. That is the whole magic of satellite radio. It gathers all the jazz lovers for example, by aggregating them over a wide area. It is that value that can translate very easily into a subscription model service where subscribers do not mind paying for value.

Satellite News: WorldSpace has more of a global focus compared to Ondas Media. How will that help you be successful in Europe? Samara: WorldSpace is the only satellite radio provider with the global reach, management experience and technology infrastructure to be successful across Europe. We know through our experience that each global market is unique and cannot be approached as an aggregate. We don’t provide French music in India, for example. Our approach is to look at each market and deliver the service that will uniquely meet the consumer demands of that market. Europe is no exception. The service we will deliver to Europe will be uniquely European. It will be driven by the needs of consumers in each country who are willing to pay for a service that is advertisement-free and caters to their tastes. While our business is global, the service will be local.

Satellite News: How do you see the satellite radio landscape developing in Europe? Samara: I think satellite radio will develop in Europe in the context of other attractive consumer-based media. The service will have its own place in the lives of European consumers. We believe we will be the first to provide satellite radio in Europe. We have the pan-European frequencies to provide the service to any country in Europe. However, our service will need terrestrial repeaters to provide the seamless experience so [that] there is no interruption when line of sight is interrupted. Terrestrial repeater licenses will be key. When they become available, we will drive our service into these countries.

Satellite News: Do you believe the market will sustain two or more players? Samara: I think Ondas has some insurmountable regulatory issues that under the current framework they would need to resolve before they could conceivably think of a service into Europe. There are issues over different frequencies. There is a process, and they do not have regulatory authorization. You usually have to have that before you offer service. You can’t start building a satellite without clarifying whether there is a chance you will have a regulatory slot for the satellite to be able to provide a service. We also believe that duplicating the infrastructure we have developed over the years from a technology, receiver development and ground network perspective, is at least a $1 billion enterprise. So there is a financial hurdle that they have to overcome. And, unlike us, I don’t think they will have the luxury to build out their European business one country at a time.

WorldSpace has a satellite that currently covers Europe. We could provide our service to any one country on the northwest beam of this satellite. If we are to provide a service to a second, third [or] fourth country, we have another satellite on the ground … which can be launched to support a satellite radio service in multiple countries throughout Europe. In other words, we can provide our services on a success basis. You don’t have to give me $2 billion and then I build this infrastructure and prove whether the success is viable in Europe. We will see what happens in Italy. Based on that, you can begin to extrapolate. I don’t think they have the luxury to do this kind of build-out of the business. From an economics perspective, however, I think the market can sustain two players. It is a very large market.

Satellite News: If Ondas Media faces insurmountable obstacles on the regulatory side and therefore the situation proves to be one by which there is only a WorldSpace offering, is that good for the European consumer? Samara: The European consumer is already in a winning situation. Whether there are two satellite radio players or just one, the European consumer is going to have access to a much larger variety of content when and where he wants it from a variety of sources. In addition to satellite radio, there will be other emerging technologies and content providers that will also enter the European market. Everyone providing content services is going to be competing with one another to offer the best of the kinds of services that the consumer might want and need in the most affordable ways.

Satellite News: What lessons can be learned from the satellite radio market in the United States and the proposed merger of Sirius Satellite Radio and XM Satellite Radio? Samara: In terms of whether there is a duopoly, there might be issues in terms of fighting for the same partners, fighting for the content providers and fighting for the same customers. The price for engagement can go up. Ultimately, if there is competition for content, the consumer will pay in two ways. First, the service becomes costlier and that cost is passed on to the consumer. Second would be [that] if I were a unique content provider or [original equipment manufacturer], I am going for the exclusive pricing. That means as a consumer when I buy your product, I have to choose between football and baseball. I have to choose between Oprah and Howard Stern. Some of these choices are not easy. A consumer is distracted in that regard, but I guess that comes with the territory. One of the main keys for a merger of XM and Sirius is that competition for satellite radio is not necessarily just coming from satellite radio. It is competing with other mobile products such as iPods, DVB-H, WiMax, etc. So there is going to be a larger competitive environment so you can’t just have a like-for-like comparison here. At the end of the day, it is about the limited time a consumer has in a mobile environment. It is a period of time where they could listen to the iPod, watch a DVB-H program, etc.

Satellite News: Do you think a merger is likely to happen? Samara: I think there are pros and cons for a monopoly versus a duopoly. There are a lot of issues for the [U.S. Federal Communications Commission] to consider. But my view is that the merger should happen. I think the consumer would benefit as a result. You buy a BMW car right now, you have to have Sirius. If you look at one or the other, you are limited by the [original equipment manufacturer’s] arrangement. There are other ways to make sure consumers are not gouged by a monopoly.

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