Monday, August 28, 2006
Decision By FCC a Break for XM Radio
Popular Receivers To Be Brought Back

By Kim Hart
Washington Post Staff Writer
Monday, August 28, 2006; D01

A Federal Communications Commission decision last week cleared XM Satellite Radio Holdings Inc. to resume production of three popular handheld radio devices, alleviating one of a number of problems that bedeviled the company this year and dragged down its stock.

The decision comes two weeks after the District-based subscription radio service halted production of the three top-selling radio models.

Since April, the FCC had been scrutinizing XM radios that contain FM transmitters, saying the devices did not meet broadcast emission standards and could interfere with other electronic devices. The transmitters allow an owner to play XM programs through a car or home stereo receiver.

The regulatory issue caused XM to stop producing the radios, causing sporadic retail shortages for what are considered "primary products."

The FCC also reviewed and cleared several models made by rival Sirius Satellite Radio Inc., but the regulatory issues seem to have made more of a dent in XM's revenue, analysts said.

Last month, XM reported that it added 398,012 net subscribers during the second quarter and passed the 7 million total subscriber mark. But it reduced its year-end subscriber target to 7.7 million from 8.2 million -- after having reduced it in May from 9 million.

Sirius, on the other hand, added 600,460 net subscribers in the second quarter, bringing the total number to 4.68 million.

Since adding shock jock Howard Stern as its headlining host, Sirius has started to increase its share of the market.

"There didn't seem to be a hiccup in Sirius's retail numbers" in the second quarter, said Chad Bartley, senior research analyst with Pacific Crest Securities in Oregon. The FCC inquiry "only affected a couple of Sirius devices rather than an entire lineup for XM."

The three radios have passed muster, but XM still has a long way to go before the company is completely in the clear, he said.

Although XM is still working with the FCC to certify five other radio models, the approval ensures that XM's radios will be fully stocked at retail outlets before the holiday shopping season, which usually generates the highest satellite radio sales, according to analysts and the company.

"We've notified manufacturers to resume production of these devices," said XM spokesman David Butler, adding that he is confident that the remaining five models will be FCC-certified in the fall.

XM's weaker-than-expected performance in the marketplace also has made investors skittish, but the FCC's decision should improve the company's outlook, analysts said. "We think investors will feel relieved that at least one of the issues that has haunted XM has come to a favorable conclusion," said Frederick W. Moran of the Stanford Group in Boca Raton, Fla.

XM's stock closed 59 cents, or 4.6 percent, higher on Friday, at $13.49.