XM Radio Hits Some More Interference
Satellite Firm Lags Rival in New Subscribers, Loses Director, Reports FCC Compliance Issue

By Kim Hart
Washington Post Staff Writer
Thursday, October 5, 2006

XM Satellite Radio Holdings Inc. reported new difficulties this week, adding to its year of problems with regulators and with growth in subscribers and revenue.

The District company said yesterday that a member of its board of directors resigned -- the second to step down this year. XM also announced that it added 285,000 subscribers in the third quarter, far less than the 441,000 gained by rival Sirius Satellite Radio Inc. And a filing with the Federal Communications Commission shows that XM has been operating more than 200 antennas at power levels beyond legal limits.

XM has about 7.2 million subscribers, compared with Sirius's 5.1 million, and has to sign-up more than 500,000 subscribers in the fourth quarter to meet its year-end projection of 7.7 million to 8.2 million.

"We think they'll be in the low end of that range," said Thomas W. Eaton, an analyst with Oppenheimer in New York, adding that he expects XM to "break even or lose money in the fourth quarter."

XM has yet to have a profitable quarter; it had predicted it would break even for the fourth quarter.

Chance Patterson, a spokesman, said the company may update subscriber forecasts the next time it reports earnings. "We're on track to meet our goals," he said.

The departure of George W. Haywood, who said he left the board for personal reasons, bumps XM out of compliance with a Nasdaq rule that requires that a majority of the board members be independent. The company has until its annual meeting in May to replace Haywood with a sixth independent director.

XM plans to fill the vacancy in the next few months, bringing the board back to 11 members, Patterson said. But it comes just 7 1/2 months after another director, Pierce J. Roberts Jr., resigned his position. Roberts said the company had been spending too much to attract new subscribers, especially in the months leading up to Howard Stern's January debut on Sirius.

XM, which has struck programming deals with celebrities including Oprah Winfrey and Bob Dylan, has begun a marketing program that puts radio devices in tens of thousands of rental cars around the country. The strategy began this summer, and the goal is to "expose more people to our programming," Patterson said.

In August, the FCC cleared XM and Sirius radio devices that had previously not met broadcast emission standards.

Both Sirius and XM had halted production of some of their most popular devices to await FCC approval, and XM decreased its subscriber projections from 9 million to 8.5 million. Since then, Sirius has continued to narrow the gap with the larger XM.

In documents filed Monday with the FCC, XM said 221 land antennas, which transmit satellite signals to local devices, were operating at power levels in excess of commission limits. The company also disclosed that 19 antennas were at sites not yet authorized by the FCC. The company has 800 working antennas.

For example, some antennas have been transmitting signals at lower frequencies than the company originally submitted for the FCC's approval, and others are across the street from, or on a different floor of, a building than where the company originally reported.

This could interfere with signals sent out by other broadcasters operating adjacent to those frequencies, said Paul Sinderbrand, a lawyer with the Wireless Communications Association International who represents companies with licenses to operate in the frequencies adjacent to the signals used by XM and Sirius.

"XM certainly seems to have a corporate inability to comply with the FCC's rules," Sinderbrand said. "This is all rather astonishing, especially given XM's past compliance issues."

Patterson said XM filed the document in an effort to update its records with the FCC and is making necessary adjustments to bring all antennas into compliance. He said other broadcasters were not being affected by XM's power levels.

"This is not an interference issue," he said. "We are just making sure all our files are updated and our equipment is in compliance."

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