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Two XM Investors Lease Nationwide Spectrum

Houston — Wireless spectrum that cellular-tower operator Crown Castle once planned for a nationwide mobile-TV service, could potentially end up helping XM Satellite Radio expand its services.

Two XM investors — Telcom Ventures and Columbia Capital — formed a venture to lease unencumbered 1.67-1.675 GHz weather-balloon spectrum in the top 300 markets from Crown Castle, which has posted net losses for the past two fiscal years. The two companies had previously been investors in WCS Wireless, which XM planned to buy to offer multimedia subscription services, including video and data, in WCS’s adjacent 2.3GHz band. WCS’s markets included the top 15 to 20 metro areas.

WCS pulled out of the deal in mid-2006, citing the slow pace of getting government approval for the transaction, and was later acquired by telecom company NextWave. At the time, XM chairman Gary Parsons stated, “With the inability to obtain the necessary government approval for this transaction in a timely manner, WCS Wireless needed to pursue alternatives for its spectrum with greater certainty of regulatory approval.”

Significantly, an XM spokesman at the time told TWICE that XM was “pursuing other means of acquiring spectrum,” although it had “no present plans” to “purchase other spectrum.”

The leasing deal by the two XM investors gives XM another possible means of obtaining additional spectrum — even if it can’t buy the spectrum right away, and only if Telcom Ventures and Columbia Capital have no plans to pursue Crown Castle’s mobile-TV vision. So far, Columbia and Crown Castle have declined comment. XM didn’t return calls at press time.

As part of the lease arrangement, Crown Castle will be the preferred provider of tower infrastructure for future tower sites needed by Capital and Telecomm to use the spectrum. Crown Castle also will transfer its mobile-TV trial network in New York City to the venture.

The $13 million annual lease runs from July 23, 2007, until Oct. 1, 2013, after which the new venture gets the right to acquire the spectrum for $130 million, plus inflation, or renew the lease for up to 10 years at $14.3 million per year.

Crown Castle expected to incur about $10 million of operating and general administrative costs in 2007 related to the spectrum and its mobile-TV operations.

Crown Castle currently operates towers in 91 of the top 100 U.S. markets, having deployed more than 22,000 wireless sites in the United States. It also operates more than 1,400 wireless communication sites in Australia.