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XM Satellite tunes in massive 2005 loss

Director warns of looming 'crisis'

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XM Satellite has experienced what you might call a pretty bad day. The company posted a massive fourth quarter loss and then revealed that a director has resigned due to fears that XM is heading toward a "crisis."

XM - the leading member of a satellite radio duopoly with Sirius - reported a 113 per cent rise in fourth quarter revenue to $177m. The gains came on the back of healthy subscriber additions but did little to improve the company's overall bottom line. In fact, XM saw its net loss swell to $268m from $188m in the same period last year.

The expanding loss failed to dampen CEO Hugh Panero's enthusiasm for XM's prospects.

"2005 was a significant growth year for XM in which we added more than 2.7 million net subscribers," Panero said. "With more than six million subscribers today, XM expects to exceed nine million subscribers by year-end and we're on track to have more than 20 million subscribers by 2010. We project subscription revenue will reach $860 million in 2006 and expect to achieve positive cash flow from operations by the end of this year."

Such optimism was not returned by Pierce Roberts, a former telecom investment banker, who resigned after five years as a XM director.

"I have been troubled about the current direction of the company and do not believe that it is in the best interest of the company’s shareholders," Roberts told the board in a letter that was reprinted in a XM regulatory filing. "For some time I have made my analyses and observations known in an increasingly vociferous manner to the Board and a number of senior managers of the Company. I am not having any useful effect and I care too much and believe in my own views too much to just 'go along'.

"Given current course and speed there is, in my view, a significant chance of a crisis on the horizon. Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now. It is clear to me that I cannot be part of the solution and I will not be part of the problem."

In the filing, XM noted that Roberts has historically favored more stringent spending controls and called for the company to reduce marketing and programming costs. "The other Directors, however, believe that the company’s high growth rate, market leadership and large base of subscribers are strategically important assets to ensure the company’s long term value and can be sustained while also reaching positive operating cash flow later this year," XM said.

For the full year, XM pulled in $558m - a solid 128 per cent increase over the $244m reported last year. Again, however, the net loss grew. XM lost $667m in 2005 versus $642m in 2004.

XM spent an astonishing $488m on marketing in 2005 - up from $304m in 2004.

Both XM and Sirius have put down serious cash in their bids to acquire customers. XM hopes to exit 2006 with 9m subscribers, while Sirius wants to grab 6m subscribers. Sirius made plenty of news this year with its lucrative package that wooed Howard Stern from traditional radio.

The satellite radio companies offer advertising-free shows in exchange for monthly subscriptions. Numerous partners have come out with home and car devices for playing the satellite radio shows and now for playing MP3s as well. XM and Sirius have exclusive deals in the US to broadcast satellite radio. ®

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