- The Washington Times - Thursday, April 27, 2006


XM Satellite Radio Holdings Inc. reported a wider first-quarter loss yesterday and disclosed that federal regulators were probing its marketing practices.

The D.C. company, the larger of the nation’s two satellite radio providers, lost $151.4 million (60 cents per share) in the three months ended March 31, compared with a loss of $122.1 million (58 cents per share) a year earlier.

XM also disclosed in a regulatory filing yesterday that the Federal Communications Commission found that one of its products, the Delphi XM SKYFi2, wasn’t in compliance with transmitter emission standards.

It also said the Federal Trade Commission was investigating whether its marketing practices were in line with rules governing telemarketing, the Truth in Lending Act and other statutes. The company said in the filing that it received both inquiries on Tuesday and was cooperating.

On a conference call with analysts, XM Chairman Gary Parsons said the FCC notice on the radio unit was unlikely to result in a product recall and noted that it was not a health or safety issue.

Also speaking on the call, Hugh Panero, the company’s chief executive, expressed frustration that the notices came so soon before the company’s earnings announcement. “I would like to avoid having these kinds of letters show up two days before our earnings call, but that’s the journey we’re on right now,” he said. He said he thought the company was already complying with marketing rules.

The disclosures triggered some unrest among investors, who were already unsettled by the company’s surprise announcement last quarter that one of its directors had quit over disagreements about the company’s direction. The director, Pierce J. Roberts Jr., had pressed for tighter cost controls.

XM’s shares fell $1.21, or 5.5 percent, to close at $20.80 on the Nasdaq Stock Market. The company’s per-share loss was also wider than analysts expected.

Sanford C. Bernstein analyst Craig Moffett told clients in a note that it was “troubling” to see a “pattern of one step forward and two steps back” for XM’s last two earnings releases.

XM’s revenue doubled to $208 million from $102.6 million as the company’s subscriber count swelled to 6.5 million, up 72 percent from 3.8 million a year ago. In the most recent quarter, XM signed up 568,900 subscribers. XM says it is on track to have 9 million subscribers by the end of the year.

The net average cost for adding each subscriber, a number watched closely by investors, fell to $94 from $141 in the fourth quarter of 2005. A year ago, the average cost was $90.

XM and rival Sirius Satellite Radio Inc. are spending heavily to sign up subscribers and programming talent to their businesses, which offer dozens of channels of talk, news and music for fees of about $13 a month. XM’s latest addition, “Theme Time Radio Hour with Your Host Bob Dylan,” will begin Wednesday.

This week, XM announced an unusual agreement under which its shock jock team of Greg “Opie” Hughes and Anthony Cumia would appear on seven stations owned by CBS Corp., which lost its own star Howard Stern to Sirius at the beginning of the year.

Mr. Hughes and Mr. Cumia, who are longtime rivals of Sirius’ Mr. Stern, used to appear on CBS radio but were pulled from the air in 2002 after they aired a live account of listeners having sex in St. Patrick’s Cathedral in New York. XM hired them in 2004.



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