Sirius XM Radio (SIRI)

The SIRIUS System

          Our satellite radio system is designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. Subscribers can receive our transmissions in all outdoor locations where the

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The SIRIUS System

      Our satellite radio system is designed to provide clear reception in most areas despite variations in terrain, buildings and other obstructions. Subscribers can receive our transmissions in all outdoor locations where the satellite radio receiver has an unobstructed line-of-sight with one of our satellites or is within range of one of our terrestrial repeaters.

      The FCC has allocated the portion of the S-band located between 2320 MHz and 2345 MHz exclusively for national satellite radio broadcasts. We use 12.5 MHz of bandwidth in the 2320.0-2332.5 MHz frequency allocation to transmit our signals from our satellites to our subscribers. Uplink transmissions (from the ground to our satellites) use 12.5 MHz of bandwidth in the 7060-7072.5 MHz band.

      Our satellite radio system consists of three principal components:

      We continually monitor our existing infrastructure and regularly evaluate improvements in technology. We plan to implement a technology within our existing system that will initially increase our network capacity by approximately 25%. This technology, known as hierarchical modulation, will allow us to offer additional audio channels, as well as advanced services such as data and video, without noticeably affecting our broadcasts. This increase in network capacity will be available through new SIRIUS radios and will not be available to SIRIUS radios sold prior to the implementation of this technology. We expect to begin offering services using this technology in 2007.

Satellites, Terrestrial Repeaters and Other Satellite Facilities

      Satellites. Space Systems/Loral, the manufacturer of our satellites, delivered our three operating satellites to us in July 2000, September 2000 and December 2000, following the completion of in-orbit testing of each satellite. Our fourth, spare satellite was delivered to ground storage in April 2002.

      Our satellites are of the Loral FS-1300 model series. This family of satellites has a history of reliability with a total of more than 350 years of in-orbit operation time. Each satellite was designed to have a useful life of approximately 15 years from time of launch.

      Each operating satellite travels in a figure eight pattern extending above and below the equator, and spends approximately 16 hours per day north of the equator. At any time, two of our three satellites operate north of the equator while the third satellite does not transmit as it traverses the portion of the orbit south of the equator. This orbital configuration yields high signal elevation angles, reducing service interruptions from signal blockage.

      We expect to augment or replace our satellite constellation by 2012. We may elect to augment our operating satellites with our fourth, spare satellite or with new satellites that we may purchase to meet our business needs. Decisions regarding our satellite constellation may affect the estimated useful life of our existing satellites, and we may modify the depreciable life accordingly. We have had discussions with satellite manufacturers regarding a new satellite; however, to date we have not decided to purchase a new satellite. The cost of replacing our satellites will be substantial.

      We have entered into an agreement with a launch services provider to secure a satellite launch on a Proton rocket prior to the end of 2010. The launch services contract may be used to launch our spare satellite or a new satellite we may decide to purchase. We have no current plans to launch our spare satellite or any other satellite.

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      Our existing satellites have experienced circuit failures on their solar arrays. The circuit failures our satellites have experienced to date do not limit the power of our broadcast signal or affect our current operations. Additional circuit failures could reduce the estimated useful life of our existing in-orbit satellites.

      We do not maintain in-orbit insurance policies covering our satellites. In 2004, we discontinued our in-orbit insurance policies covering our satellites following a review of the health of our satellite constellation, the exclusions from coverage contained in the available insurance, the costs of the available insurance, and the practices of other satellite companies as to in-orbit insurance.

      Our satellites are designed to minimize the adverse effects of transmission component failure through the incorporation of redundant components that activate automatically or by ground command upon failure. If multiple component failures occur and the supply of redundant components is exhausted, the satellite generally will continue to operate, but at reduced power.

      If we are required to launch our spare satellite due to the in-orbit failure of one of our orbiting satellites, our operations would be impaired until such time as we successfully launch and commission our spare satellite, which could take six months or more. If two or more of our satellites fail in orbit in close proximity in time, our operations could be suspended for at least 24 months. In such event, our business would be materially impacted and we could default on our commitments.

      Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, and in tunnels, signals from our satellites may be blocked and reception of our satellite signal can be adversely affected. In many of these areas, we have deployed terrestrial repeaters to supplement our satellite coverage. To date, we have deployed 140 terrestrial repeaters in 95 urban areas. We expect to deploy a significant number of additional terrestrial repeaters in 2006.

      Other Satellite Facilities. We control and communicate with our satellites from our uplink facility in New Jersey. These activities include routine satellite orbital maneuvers and monitoring of the satellites. We also maintain earth stations in Panama and Ecuador to control and communicate with our satellites.

Studios

      Our programming originates from our national broadcast studio in New York City and smaller studio facilities in Houston, Texas; Memphis, Tennessee; Nashville, Tennessee; and Los Angeles, California. The national broadcast studio houses our corporate headquarters, our music library, facilities for programming origination, programming personnel and facilities to transmit programming to our orbiting satellites.

      Our studios and transmission facilities are 100% digital, resulting in no cumulative distortion to degrade the sound of our music and entertainment product. Our studios contain state-of-the-art production facilities. Service commands to initiate and suspend subscriber service are relayed from the national broadcast studio to our satellites for retransmission to subscribers’ radios.

SIRIUS Radios

      We have authorized selected manufacturers to produce SIRIUS radios. These radios are distributed under various consumer brands, including the SIRIUS brand. Over time we expect to introduce SIRIUS radios with new features, functionality and form factors.

      To facilitate the sale of SIRIUS radios, we subsidize chip sets and a portion of radio manufacturing costs to effectively reduce the price of SIRIUS radios to our subscribers. We expect these subsidies to decrease over time.

      Plug & Play Radios. Plug & Play radios enable subscribers to transport a radio easily to and from their cars, trucks, homes, offices, boats or other locations with available adapter kits. Plug & Play radios adapt to existing audio systems through FM modulation and other technology solutions and can be easily installed by a retailer or the purchaser. In addition, satellite radio Plug & Play

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systems designed for commercial truckers are available through participating truck manufacturers, truck dealers and truck stops.

      A boom box, which enables our subscribers to use their SIRIUS radios virtually anywhere, is available for various models of Plug & Play radios.

      Portable Units. In 2005, we introduced the SIRIUS S50, a wearable satellite radio. The SIRIUS S50 allows users to capture and store up to fifty hours of SIRIUS music, or a mix of SIRIUS music and MP3/WMA files, enabling listening on the go. When attached to a home dock, car dock or executive docking station, the SIRIUS S50 provides easy access to live content, and captures and stores SIRIUS music.

      FM Modulated Radios. FM modulated radios enable our service to be received in all vehicles with FM radios.

      In-dash Radios. In-dash radios are integrated seamlessly into the vehicles and allow the user to listen to AM, FM or SIRIUS with the push of a button. The SIRIUS receiver can be built into the radio or connected as a hidden external unit.

      In the auto sound aftermarket, in-dash radios are available at retailers nationally. In-dash radios are also available to automakers for factory or dealer installation. When factory-installed, the cost of the SIRIUS radio is generally included in the sticker price of the vehicle and may include a prepaid SIRIUS subscription of typically six months to one year in duration.

      Home and Commercial Units. SIRIUS home units that connect to most home stereo systems are available nationally. In addition, various multi-tuner and multi-zone units are available through commercial dealers and custom installation dealers. These units allow the user to listen to the SIRIUS service from multiple locations within a home or business.

      The SiriusConnect Home tuner is a satellite radio receiver designed to interface with multiple radios, audio systems and home theater systems. The SiriusConnect Home tuner provides a one-cable connection to easily add our service to SIRIUS-ready home systems manufactured by companies such as Eton and Thomson, under the RCA and GE brands.

      Many SIRIUS radios now include a “replay” feature, allowing listeners to pause, rewind and fast forward music, sports or talk programs. A number of SIRIUS radios also include SIRIUS-Seek, which alerts listeners when selected artists or songs are playing; Game Alert, which prompts listeners when their favorite teams begin a game or when scores change; Game Zone, which lists a listener's favorite team scores on one screen; and one-touch access to traffic and weather reports for select cities.

      We signed an agreement with XM Radio, the holder of the other FCC license to provide a satellite-based digital audio radio service, to develop a unified standard for satellite radios to enable consumers to purchase one radio capable of receiving both SIRIUS' and XM Radio’s services. We expect the unified standard to detail the technology to be employed by manufacturers of such dual-mode radios, although we have no assurances that any manufacturer will build, or that a market will develop, for such dual-mode radios. The technology relating to this unified standard is being developed, funded and will be owned jointly by the two companies. This unified standard is also intended to meet FCC rules that require interoperability of both licensed satellite radio systems. In 2005, we substantially completed the design of a radio capable of receiving both services.

The SIRIUS System

      Our satellite radio system is designed to provide clear reception in most areas of the continental United States despite variations in terrain, buildings and other obstructions. Motorists can receive our transmissions in all outdoor locations where the vehicle has an unobstructed line-of-sight with one of our satellites or is within range of one of our terrestrial repeaters.

      The FCC has allocated the portion of the S-band located between 2320 MHz and 2345 MHz exclusively for national satellite radio broadcasts. We use 12.5 MHz of bandwidth in the 2320.0-2332.5 MHz frequency allocation to transmit our signals from our satellites to our subscribers. Uplink transmissions (from the ground to our satellites) use 12.5 MHz of bandwidth in the 7060.0-7072.5 MHz band. We continue to explore various opportunities to acquire additional spectrum that would enable us to expand our service offerings in the future.

      Our satellite radio system consists of three principal components:

Satellites, Terrestrial Repeaters and Satellite Uplink Facility

      Satellites. Space Systems/Loral, the manufacturer of our satellites, delivered our three operating satellites to us in 2000, following the completion of in-orbit testing of each satellite. Our fourth, spare satellite was delivered to ground storage in April 2002. Our satellites are of the Loral FS-1300 model series. This family of satellites has a history of reliability with a total of more than

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400 years of in-orbit operation time. Each satellite is designed to have a useful life of approximately 15 years from time of launch.

      Each operating satellite travels in an apparent figure eight pattern extending above and below the equator, and spends approximately 16 hours per day north of the equator. At any time, two of our three satellites operate north of the equator while the third satellite does not transmit as it traverses the portion of the orbit south of the equator. This orbital configuration yields high signal elevation angles, reducing service interruptions that can result from signal blockage.

      Space Systems/Loral has identified circuit failures in solar arrays on satellites launched since 1997, including our satellites. The circuit failures our satellites have experienced to date have not limited the power of our broadcast signal or otherwise affected our current operations. However, if a substantial number of additional circuit failures occur, the estimated useful life of our existing in-orbit satellites could be reduced.

      In 2004, we discontinued our in-orbit insurance policies covering our satellites following a review of the health of our satellite constellation; the exclusions from coverage contained in the available insurance; the costs of the available insurance; the practices of other satellite companies as to in-orbit insurance; and the likelihood that a catastrophic failure of one or more of our satellites may not be covered by the available insurance or would fall within a policy exclusion.

      Our satellites are designed to minimize the adverse effects of transmission component failure through the incorporation of redundant components that activate automatically or by ground command upon failure. If multiple component failures occur and the supply of redundant components is exhausted, the satellite generally will continue to operate, but at reduced power.

      If one of our three satellites fails in orbit, our service would be impaired until such time as we successfully launch and commission our spare satellite, which could take six months or more. If two or more of our satellites fail in orbit in close proximity in time, our service could be suspended for at least 24 months. In such event, our business would be materially impacted and we could default on our commitments and might have to permanently discontinue operations or seek a purchaser for our business or assets.

      Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as major urban areas, signals from our satellites may be blocked for an extended period of time. In many of these areas, we have deployed terrestrial repeaters to complement our satellite coverage. To date, we have deployed 137 terrestrial repeaters. We continually evaluate the adequacy of our terrestrial repeater network and expect to expand the network to meet the needs of our subscribers.

      Satellite Uplink Facility. In April 2004, we acquired a satellite uplink facility in Vernon, New Jersey, which we use to command, control and communicate with our satellites. Prior to April 2004, we leased facilities at this location for the same purposes. During 2004, we transferred our primary satellite tracking, telemetry and control functions from our national broadcast studio to our facility in Vernon, New Jersey. These activities include routine satellite orbital maneuvers and monitoring of our satellites.

National Broadcast Studio

      Our programming principally originates from our national broadcast studio in New York City. The national broadcast studio houses our corporate headquarters, our music library, facilities for programming origination, programming personnel and facilities to transmit programming to our orbiting satellites. We also originate some of our programming from small studio facilities in Houston, Texas; Memphis, Tennessee; Nashville, Tennessee; and Los Angeles, California.

      The studios and transmission facilities at our national broadcast studio are 100% digital, resulting in no cumulative distortion to degrade the sound of our music and entertainment product. The national broadcast studio also contains state-of-the-art production facilities. Service commands to initiate and suspend subscriber service also are relayed from our national broadcast studio to our satellites for retransmission to subscribers' radios.

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SIRIUS Radios

      Numerous consumer electronics manufacturers produce and distribute various types of SIRIUS radios. Over time, we expect to introduce SIRIUS radios at lower price points and SIRIUS radios with new features, functions and appearances, including recording and other capabilities.

      To facilitate the sale of SIRIUS radios, we have entered into agreements with the manufacturers of our chip sets to purchase and fund a portion of the development costs for our chip sets. We have also entered into agreements with certain manufacturers and distributors of SIRIUS radios to subsidize a portion of the costs of SIRIUS radios. These agreements have the effect of reducing the price of SIRIUS radios to our subscriber. We expect these subsidies to decrease over time.

      Plug & Play Radios. Plug & Play radios enable subscribers to transport a radio easily to and from their cars, trucks, homes or boats with available adapter kits. Plug & Play radios adapt to existing car and home audio systems and can be easily installed by either a retailer or the purchaser. In 2004, we introduced receivers under our SIRIUS brand. The SIRIUS Sportster, a Plug & Play radio distributed by us, was one of the top selling Plug & Play radios during 2004. Plug & Play radios from Audiovox, Blaupunkt, Clarion, DISH Network, JVC, Kenwood, RadioShack, Sanyo and XAct are also currently available at retailers nationally. In addition, the Brix STREAMER, a satellite radio system designed for commercial truckers, is available through participating truck manufacturers, truck dealers and truck stops.

      For portable use, a SIRIUS boom box, which enables our subscribers to use their SIRIUS radios virtually anywhere, is available from many of our manufacturers as well as under the SIRIUS Sportster brand.

      FM Modulated Radios. FM modulated radios enable our service to be received in all vehicles with FM radios, or approximately 95% of all U.S. vehicles. The essential electronics for each FM modulated radio is contained in a small unit approximately the size of a video cassette that is customarily mounted in the vehicle's trunk. FM modulated radios under the SIRIUS, Clarion and Kenwood brands are available at retailers nationally.

      In-dash Radios. In-dash radios are integrated seamlessly into the vehicle and allow the user to listen to AM, FM or SIRIUS with the push of a button. The SIRIUS receiver can be built into the radio or connected as a hidden external unit.

      In the auto sound aftermarket, in-dash radios from Alpine, Kenwood, Pioneer and Clarion are currently available at retailers nationally. Three-band radios from Delphi, Alpine and Visteon are also available to automakers for factory or dealer installation. When factory-installed, the cost of the SIRIUS radio is generally included in the sticker price of the vehicle and may include a prepaid subscription to our service.

      Home and Commercial Units. SIRIUS radios from Kenwood and Audiovox that connect to most home stereo systems are available nationally. In addition, a three-zone commercial unit from Antex Electronics, a manufacturer and distributor of specialty electronics products, is available through custom electronics dealers. This unit allows users to listen to different channels in different rooms of the same home or business.