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SIRIUS XM Radio Inc. (SIRI - Analyst Report), the largest satellite radio broadcaster in the U.S., is set to diversify its business model from a pure radio entertainment provider to a Web-based safety and navigation information provider for cars. Recently, the company decided to acquire the connected vehicle services unit of Agero Inc. for a total consideration of $530 million in cash. The deal is expected to be completed by the fourth quarter of 2013 subject to the customary regulatory approval.

Agero’s connected vehicle unit provides several telematics services, including driver alerts, vehicle maintenance information and location based content for traffic information, nearby gas stations or restaurants information, along with navigation help and voice texting services. The company has strong telematics partnership with almost all major car manufacturers including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota.

The deal will enable SIRIUS XM to offer both satellite services and wireless services. Last month, the company entered into a partnership with AT&T Inc. (T - Analyst Report) to offer emergency support, stolen vehicle tracking and roadside assistance to all connected cars in North America manufactured by Nissan Motors. SIRIUS XM currently offers satellite-radio broadcasting services in more than 50 million cars in the U.S. This figure may double with wireless-based telematics services in its kitty.

Moreover, the acquisition of Agero’s telematics services will help SIRIUS XM to counter the growing competitive threat in the in-vehicle broadcast radio entertainment segment. Pandora Media Inc. (P - Snapshot Report), the largest online radio streaming service provider in the U.S., and the upcoming iTunes online radio service of Apple Inc. (AAPL - Analyst Report) have become major threats for SIRIUS XM.

In this situation, diversification into a growing telematics segment will definitely help the company to sustain its growth momentum. Several industry researchers have estimated that the telematics market, at present, offers a $4.2 billion opportunity. SIRIUS XM currently has a Zacks Rank #3 (Hold).

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