XM Satellite Radio set to fly

Rival Sirius to take off later this year

Why This Matters

Keeping signals uninterrupted

Keeping signals uninterrupted

Part of what will make or break satellite radio has nothing to do with satellites or programming or receivers.

It's the extensive repeater networks both services have placed in urban areas, so-called "gap-fillers" that will deliver the service to consumers' receivers if the satellite signal is interrupted. Urban canyons in big cities disturb satellite radio so XM and Sirius have been forced to rig high-powered repeaters to fix that.

XM is building a network of some 1,500 repeaters across the country, some to cover large areas and other smaller "microrepeaters" to fill in around tunnels, underpasses or ravines. Sirius also is working on a repeater network, installing 105 high-power repeaters in 46 urban areas. Because Sirius is using three satellites instead of XM's two, it has more redundancy and doesn't need as many repeaters.

The companies say repeaters are just part of the business plan; traditional broadcasters say the repeaters are a ploy that will allow the satellite radio companies to enter local radio markets if the satellite services fail as businesses.

But both XM and Sirius say they have no intention of providing local radio content or selling local ads.

"The rules have been designed to ensure that we can only repeat the signal that's on the satellite. We cannot do any kind of local ad insertion," says Lon Levin, XM's senior vice president of regulatory affairs. "We simply are prohibited by the rules from doing that, and that's something we accept."

The wireless-phone companies—such as AT&T Wireless, Bell South and Verizon—are concerned that the repeater networks will interfere with their services. Satellite radio operates in 25 MHz of the S-Band of spectrum, from 2320 to 2345 MHz. Wireless phone services operate in the surrounding spectrum, from 2310 to 2320 and 2345 to 2360 MHz. The phone services say satellite radio's transmissions are interfering with them; the satellite-radio representatives argue that wireless-phone services just need to design better receivers.

And then there's this: While they are on the receiving end of complaints about their interference potential, XM and Sirius also have complained to the FCC about one obscure maker of newfangled lightbulbs, Fusion Lighting.

Fusion's lightbulbs operate in the 2450 MHz band, almost 100 MHz above XM and Sirius. Still, tests have proved that Fusion's technology interferes with satellite radio. (Satellite radio doesn't hurt the lightbulbs, though.) Since XM paid $88 million and Sirius paid $83 million for their licenses, they feel they have a right to ask the FCC to keep interfering elements off their band.—P.A.

Ten years after the idea was first conceived, consumers will finally be able to determine if satellite radio will really fly.

XM Satellite Radio, which debuts next Monday, is the first of two satellite services that will be launched this year. It already has two satellites in the air. XM's birds—appropriately named "Rock" and "Roll"—were launched earlier this year and are now hovering above the equator. On its Web site, you can sample some of its new channels.

Next comes Sirius Satellite Radio, which launches in December with three satellites orbiting the earth.

The birds from both services are poised to beam some 200 new channels of sound back to earth, mostly to Americans driving cars because, of course, that's where Americans do most of their radio listening. It's a huge market, as anyone caught in rush hour can attest: There are approximately 208 million cars on the road; and consumers buy 17 million new cars each year. Every year, they buy almost 30 million new car stereos.

XM and Sirius each need to snag 4 million of those new car buyers by 2004 just to earn back their initial investment of $3.2 billion between them. They think they can do it: The idea is that, while consumers might balk at spending $200 to $1,000 to retrofit their car for satellite radio, they may not mind if the cost of the service is rolled into the price of a new car or included as part of a lease.


Still, satellite radio's hurdles aren't unlike cable television's tough sell at its start. Will consumers pay for something they have never paid for in the past? XM wants $9.95 a month (and Sirius wants $12.95) to give consumers 100-plus channels of CD-quality, largely commercial-free, nationally distributed radio.

And, while it's important for the companies to sign up subscribers, it's just as important for them to keep them, analysts say. The model, again, is cable television, and Americans have certainly shown they want that.

"I don't think it's going to be an in-between, hanging-on scenario," says Haig Hovaness, an independent media consultant who follows satellite radio. "Word of mouth will determine if it's going to catch on."

He is generally bearish on satellite radio's prospects. "I'd say odds are against them, but I can't rule out a success," Hovaness concedes—but other financial types expect big things. The Boston-based Yankee Group estimates that satellite radio will have 20 million subscribers by 2005.

"Once their services are completely operational, we are expecting growth rates similar to direct-broadcast satellite, which showed the highest growth rates of any consumer product ever," says Ryan Jones, media and entertainment analyst for The Yankee Group.

Another important indicator of confidence, according to Jones, is the fact that XM last month launched a $100 million advertising campaign, including TV, radio, magazines, newspapers, direct mail, outdoor and online ads.

But Jones says the bar now is higher because it has taken longer to launch than first expected.

When Sirius planned to debut in 1998, it thought it would need only 1.8 million subscribers to hit the break-even mark. But Sirius has struggled to get the chipsets in its receivers to work correctly.

XM always planned to launch in 2001, says XM President Hugh Panero, but XM also was slowed while it put its repeater network in place, Jones says.

So now, XM goes live in Dallas/Fort Worth and San Diego on Sept. 12, rolls out to the entire Southwest U.S. in October and goes national in November. Sirius will launch nationally in December without any test-market experiments.


There are a lot of unknowns. One of the biggest right now is the economy.

But, as XM and Sirius executives see it, $10-$13 a month is a small price to pay to be entertained, particularly when spending hours a day commuting in traffic. On the other hand, luxury cars are one of satellite radio's prime targets, and purchases of those tend to decline in economic hard times.

Both satellite providers have horsepower behind them. Sirius' two strategic investors are DaimlerChrysler Corp. and Ford Motor Corp, and, two weeks ago, it announced that luxury-car maker BMW will offer Sirius as an option in second quarter 2002. Besides Chrysler and Ford, other car nameplates that will offer Sirius include Mercedes-Benz, Jeep, Lincoln, Jaguar and Volvo. Long-haul trucking companies Freightliner and Sterling Trucks also have Sirius distribution agreements.

XM's automotive partners include strategic investors General Motors and Honda, with GM planning to include XM as part of the factory-installed options in 2002 Cadillacs. XM plans to unveil other car deals at the beginning of next year, likely with Honda and other GM models. XM also is funded by No. 1 satellite-TV company DirecTV and the country's biggest radio operator, Clear Channel Communications.

That funding is substantial. Sirius has raised $1.8 billion and XM $1.4 billion, some of it sunk into XM's Washington headquarters with its 20 production suites, 310 audio workstations and 82 studios, as well as a 2,600-square-foot performance studio. XM also has supplemental studios in New York and Nashville.


Both services will offer 100-plus channels of music, news, talk and sports, and both will have some commercials on some channels, although Sirius likes to boast that all 50 of its music channels will be commercial-free.

XM says 30 of its 71 all-music channels will be commercial-free. The channels that do run ads, says Chance Patterson, XM's vice president of corporate relations, will start with two to four minutes per hour and ultimately will increase to five or six minutes.

That's not much compared with commercial drive-time radio, Patterson says. "In some of these markets, drive-time spot loads can go upwards of 24 minutes of commercials per hour."

The absence of commercials is another reason XM and Sirius believe that consumers will be willing to pay for satellite radio. Drivers will still have access to their local radio stations for news, traffic and weather, and, once they get all that, they can tune into a system that the companies hope will be as well received as cable and satellite TV before it.

"If you love reggae music, you are not going to find a reggae channel anywhere, except maybe for an hour on some college radio station," says XM President Panero.

"Out of our 71 [music] channels," he adds, "I think there are individual channels that are so compelling to certain people that they would just pay $10 a month to get the one channel. People will pay for their passions. We're going to provide an amazing opportunity for them to do so."

Some well-known radio hands will be working to make the medium's latest incarnation a success. At Sirius, its programming consultant is veteran Joe Capobianco. XM's consultant, Lee Abrams, is a legend in the radio world. He has been in the business since he was 13 and now seems as excited about programming radio stations as if he'd just started.

"We run an XM boot camp where we get everyone together for these long eight-hour sessions to liberate them from everything they've learned about radio and teach them the XM way," he explains. "For every 100 people we've recruited, 99 tended to have too much radio baggage, but there's that one person who's got it."

And like a cheerleader at a pep rally, Abrams asks his new recruits: "Are you ready to revolutionize radio?"

Tale of the tape
After a decade and hundreds of millions of dollars, satellite radio takes off next week with the debut of XM; Sirius is expected to launch in December.
Sirius XM
*New deals will be non-exclusive.
**Though required by the FCC, receivers that accept both Sirius' and XM's signals will not be available until 2004, the companies say.
Source: Companies and their Securities & Exchange Commission filings
Headquarters1221 Avenue of the Americas New York, NY 10020 (212) 584-5100 siriusradio.com1500 Eckington Pl. NE Washington, DC 20002 (202) 380-4000 xmradio.com
Top executiveCEO David MargolesePresident Hugh Panero
Facilities76 studios, four live-performance studiosAbout 82 studios in NY, DC and Nashville; one live- performance studio in DC
Targeted customersCommuters, truck drivers, RV owners, HispanicsEveryone
First available in cars1Q 2002 (BMW)3Q 2001 (GM)
Price of after-mkt. receivers$250 plus$240-$299
Monthly subscription rate$12.95$9.99
Number of channels100100
Programming 50 commercial-free music channels; 50 news, talk andsports (with commercials) 71 channels of music (more than 30 commercial-free); 29 news, talk, comedy, children, sports
Unusual channelsEclectic rock, bluegrass, classic soul, gospel, Latin love songs, Scandal ChannelNASCAR channel, trucker, Babble On youth channel, disco, Hindi music, unsigned artists
Exclusive program providersCNBC, NPR, USA Networks/Sci-Fi Channel, Ray ManzarekBET, Clear Channel, CNN SI, CNNfn, CNET, Bloomberg, Radio One (urban music), Salem Communications, MTV, VH1, HBC
Automobile partners*Ford (exclusive; includes Mazda), DaimlerChrysler (Jeep, Dodge exclusive; "preferred" status for Freight-liner trucks), BMW (exclusive)General Motors Corp. (exclusive), Freightliner (trucks), Honda, Saab, Chevy trucks, Buick, Cadillac
Receiver partners**Alpine Electronics, Audiovox, Clarion, Delphi-Delco Electronics Systems, Kenwood, Panasonic, Sanyo Electric, VisteonAlpine, Audiovox, Clarion, Automotive Systems (Ford) Blaupunkt, Delphi-Delco, Electronic Automotive America, Motorola, Pioneer Electronics, Sharp Sanyo, Bontac
Receiver-technology providers STMicroelectronicsAgere Systems
Principal investorsDaimlerChrysler, Ford, Apollo Investors, Blackstone GroupGeneral Motors Corp.,DirecTV, Clear Channel, Motient Corp., Apollo Group