Ford, CD Radio Plan Early `01 OEM Sales

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Ford plans to offer CD Radio receivers as early as the first quarter of 2001 following CD Radio's expected late-2000 launch of commercial satellite digital audio radio (SDAR) service.

The automaker will offer CD Radio exclusively through March 2002 and will eventually offer the receivers through all of the brands it owns or controls: Ford, Lincoln, Mercury, Mazda, Jaguar, Aston Martin, and Volvo.

As part of the deal, Ford will receive a portion of subscription revenues generated by Ford owners, reimbursement for unspecified hardware costs for installing CD Radio receivers, and warrants to purchase up to 4 million CD Radio shares at $30 per share. The number of warrants exercised will be based on the number of Ford vehicles sold with CD Radio receivers installed. If 4 million were sold, Ford would own about 15% of CD Radio, based on the current number of 23.2 million outstanding shares.

Nonetheless, during a conference call with the press, CD Radio chairman David Margolese said his company "didn't seek an investment from Ford." He also claimed his company values its independence, which he said gives it "flexibility," apparently to pursue multiple automaker accounts.

In targeting "mainstream customers," Ford will sell the service through "a broad assortment of vehicle lines," said Mike Ledford, Ford's executive director for telematics.

The introduction will occur in phases beginning in early 2001, Ledford said. "Initially, we might do this in one or two vehicle lines as a pilot" but "ramp it up" to other lines as soon as possible after demand has been gauged, he explained. "We plan to add CD Radio to almost every radio offered," though not necessarily in 2001, he added.

To differentiate its products from those in the aftermarket, Ford plans to offer proprietary telematics services through its SDAR receivers, which are individually addressable. CD Radio itself will not offer such services through aftermarket receivers, said CD Radio chairman David Margolese. "Telematics is Ford's bailiwick," he said.

Ford's Ledford declined to specify the types of telematics services planned but said one option is the ability to remotely unlock doors if a driver locks himself out.

First-generation receivers will be trunk-mounted units that tie into in-dash radios, Ledford said. But in-dash units integrated with traditional radio receivers could be available a year later. "Our vision is that they will be factory-installed when integrated," he added. First-generation units might be dealer-installed.

"We will not necessarily limit this to high-end cars," Ledford continued. "In some vehicle lines, it will probably be standard; in others, an option," he added.

Ford plans to use its existing radio suppliers to support its launch and therefore expects "a variety of satellite-enabled radios will be available to us" for early 2001, Ledford said. Ford's major radio supplier is Ford subsidiary Visteon.

The premium for a satellite radio will be "far less than $200," Ledford said. For that price, Margolese added, the company is "cautiously optimistic" that factory radios can be designed with out-of-sight antennas, whereas aftermarket models might come with small disc antennas similar to car GPS antennas.

In other updates, Margolese said:

He expects a federal court "within a year" to rule on CD Radio's patent-infringement suit against SDAR competitor XM. "We asked for an injunction [preventing XM from using three CD Radio patents to build its system] until we can resolve this," he said. "We told XM they'll have to pay" to use key CD Radio patents that "make the service work properly," he said.

CD Radio has almost a one-year time-to-market advantage over competitor XM Satellite Radio. CD Radio will launch three satellites in January, March and May 2000 so it can launch commercial service in late 2000, Margolese said. XM Satellite Radio's first satellite is scheduled for late 2001 launch, followed by its second satellite in early 2001. "Meaningful commercial operation" of XM's system would start "in the first part of 2001," said XM president Hugh Panero.

CD Radio has already raised $1 billion in capital, split evenly between debt and equity, and needs another $400 million to launch its service, chairman David Margolese said.

CD Radio will spend $100 million annually to market the service once it's launched.

Other companies committed to making CD Radio receivers are Recoton and GM's Delphi unit.


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