Shooting Down Satellite Radio?

Terrestrial broadcasters are going for an FCC-aided kill in their long-raging fight with XM and Sirius

by Olga Kharif

The radio wars are escalating. In a one-two punch aimed at enlisting regulators to their cause, the National Association of Broadcasters (NAB) and National Public Radio want the Federal Communications Commission to investigate alleged misdeeds by satellite radio companies XM (XMSR) and Sirius (SIRI).

On Oct. 12, National Public Radio CEO Ken Stern wrote to FCC Chairman Kevin Martin alleging that the satellite broadcasters' devices interfere with NPR broadcasts. And last week, David Rehr, president and CEO of the powerful NAB, fired off two letters to Martin alleging several regulatory violations.

Old Radio Vs. New Radio

The latest correspondence should strike Martin with a sense of déja vu—and Sirius and XM with a sense of foreboding. Seven months ago the NAB sought the FCC's help in preventing XM from acquiring wireless licenses to provide an array of new services, such as on-demand audio and video, competing more directly with terrestrial radio. XM abandoned the bid in May, figuring that the agency would oppose the effort.

That's just one of many instances where terrestrial broadcasters and satellite radio outfits have clashed over the years. And the NAB, which represents land radio stations, with some 260 million listeners every week, has won thus far.

"The NAB has tried to kill satellite radio from the beginning," says Tom Watts, an analyst with Cowen & Co. (COWN) "Because the FCC has listened, broadcasters are using the regulators as a weapon now." That's proving easier, however, since XM and Sirius have recently admitted to some of the violations—which is partially why the terrestrial broadcasters are taking their fight further in this latest skirmish.

Satellite Slip-ups

Claiming "a persistent corporate (if not industry) circumvention of the FCC's regulations," the NAB and NPR are demanding an investigation into at least three separate issues, two of which the broadcasters raised with the FCC earlier this year. The NAB's goal seems to be stripping XM and Sirius of their licenses.

The satellite operators have displayed "a lack of candor in dealing with the FCC," says NAB spokesman Dennis Wharton. "In such cases, a licensee can have the license taken away."

That worst-case scenario is unlikely to play out: Some of the alleged violations cited in the NPR letter can't be conclusively linked to satellite radio devices. Other alleged missteps could simply result in tens of thousands of dollars in fines and a slap on the hand, says John Garziglia, a lawyer specializing in FCC issues at law firm Womble Carlyle in Washington. "It doesn't appear to be a big deal," he says.

Yet other allegations, if the FCC deems them serious, could result in temporary degradation in quality of service for satellite radio subscribers, major product recalls, and even shifts in the satellite radio industry's marketing and content strategies. These measures could potentially prompt a slowdown in satellite radio subscriber growth.

Consultancy ABI Research currently predicts subscriber numbers to rise from 14 million by yearend to 30 million at the end of 2011. "NAB's sole interest here is in trying to hamper competing services that offer consumers compelling choices that terrestrial radio can't provide," according to a statement from XM. New York-based Sirius didn't return calls seeking comment.

FCC Compliance

There are several complaints, and several possible outcomes. Take the NAB claim, supported by XM and Sirius' own filings, that some of the satellite companies' terrestrial repeaters (devices that receive signals and retransmit them), installed on buildings and towers to ensure seamless satellite radio coverage, don't comply with FCC rules. Of XM's 794 repeaters, 19 weren't authorized by the FCC, and as many as 142 are located more than 500 feet from their authorized locations.