XM IS DENIED INSURANCE CLAIMS ON DEGRADED SATELLITES
XM Satellite Radio has been denied insurance payouts on $400 million in claims filed in the first quarter (CD April 3 p12) because of the continuing degradation of its 2 orbiting Boeing 702-class satellites, company executives told financial analysts in a conference call Thurs. on the release of 2nd-quarter results.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
The group of insurers said the satellites “still were performing above their insured levels” and “the power trend lines were not definitive,” CEO Hugh Panero said. He said the insurers also accused XM of violating certain policy provisions, which he didn’t specify. “We disagree with this group’s position,” Panero said, saying XM would pursue settlement negotiations, arbitration or “litigation, if needed, to recover our insured losses.” XM has launch and in-orbit insurance coverage worth $200 million per satellite against each bird, the company said. Panero told analysts there had been no meaningful change in the satellites’ previously predicted rate of degradation because of a solar array output power problem.
To assure “seamless” service for expanding its subscriber base over the medium- to long-term future, he said, XM had made “firm contractual arrangements” to launch a 3rd satellite, XM-3, in 2004’s 4th quarter and build a new ground spare, XM-4, for availability by the 4th quarter of 2005. He said XM also had signed a contract with Sea Launch to launch XM-4 as needed. Once XM-3 is in orbit and is operational, he said, XM’s 2 existing satellites -- XM-1 and XM-2 -- will be colocated into the company’s other orbital slot, where each will be used to transmit 50% of XM’s channels. XM-4 will be a backup for XM-3 and ultimately will replace XM-1 and XM-2 when launched “in the 2007 time frame,” he said. Including the $231 million raised in new financing in the quarter, Panero said, XM has sufficient cash to launch XM-3 (which has been modified to fix the solar array problem), but will need additional funding or insurance payouts by 2005 to pay for construction of XM-4.
XM ended the 2nd quarter with 692,253 subscribers, adding 209,178 for a 43% increase from the first quarter and a fivefold increase from the same quarter a year earlier. Panero said the subscriber growth rate exceeded that of last holiday selling season. Growth to date in the 3rd quarter has been consistent with trends in the car audio market when sales seasonally experience “flat to modest” increases, he said. Panero said XM was on track to finish 2003 with 1.2 million subscribers as it had projected and it expected to surpass its milestone of million subscribers early in the 4th quarter.