XM Faces FCC, FTC Scrutiny
XM got double doses of federal regulatory inquiry this week, it said. In an SEC 8-K released just before its Thurs. earnings report, XM said the FCC and FTC are scrutinizing it on XM radio power emissions and compliance with several FTC rules. The regulatory inquiries added a layer of uncertainty to an otherwise optimistic quarterly report.
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XM’s Delphi SKYFi2 doesn’t meet FCC emission standards, according to results of tests by the FCC Office of Engineering & Technology Lab, XM said. The FCC sought data on testing, emissions and “other matters relating to this radio,” XM’s SEC filing said. XM officials said the firm is doing an internal review and will respond to the FCC within 30 days.
The SKYFi2 matter is “in no way a safety or health issue,” XM CEO Hugh Panero told analysts. XM has received “minimal complaints about interference issues,” he said. Rarely does the FCC require recalls “on anything like this,” Panero told investors. Whether XM’s next-generation radios also might be violating FCC power limits isn’t clear, he said.
The FTC chimed in the same day (Tues.), citing concerns over the firm’s billing and marketing, XM said. The agency is checking to see if XM complies with the FTC Act, telemarketing sales rules, the Truth in Lending Act and the CAN-SPAM Act, the FTC said. The FTC inquired about XM free trials, rebates, telemarketing, billing and customer complaints, XM said. A 2nd internal XM inquiry is pursuing those concerns, company officials said. XM will respond to the FTC shortly, XM said.
XM’s new gadgets -- spurs of much music industry anxiety because they can record and save material carried on XM’s live satellite radio stream (see related story, this issue) - - are hitting the market, said Panero. The Pioneer Inno reached stores this week, in time for graduation gift buyers, Panero said. XM hasn’t made a device-based royalty deal with the music industry that would cover the Inno or Helix, as rival Sirius did with its similar S50, Panero said (CD March 23 p9). “We're working toward that goal,” he said, adding XM believes its new products are “legal and consumer friendly.”
Broadcaster efforts to derail XM’s new radios and other competitive threats to terrestrial broadcasters won’t “slow [XM] down,” Panero said. A Washington hq helps when it comes to fighting the NAB and other satellite radio foes, said Chmn. Gary Parsons. As XM gets bigger, “it brings out far more people who want to throw logjams in your way,” he said: “XM won’t win every single one of our arguments, but we've been effective since the birth of the industry, which the NAB opposed.”
XM revenue more than doubled first quarter from a year earlier, but its loss widened to $151.4 million from $122.1 million. Revenue reached $208 million from $102.6 million, , as XM’s subscriber count jumped to 6.5 million from 3.8 million in the same period a year ago. XM said it signed 568,900 subscribers in the quarter; the firm has its eye on 9 million by year’s end.