XM Solves Satellite Software Snafu

XM Satellite Radio fully restored its service Tuesday, the company said, after outages affected an unknown number of subscribers for parts of two days.

XM believed all service had been restored by early Tuesday afternoon, more than 24 hours after outages were first reported midday Monday. The company did not know how many of its 8 million subscribers experienced loss of service or problems with reception, it explained.

The problem stemmed from the loading of a software update to “a critical component of the satellite broadcast system, which resulted in a temporary loss of signal from one of the company’s satellites,” XM said in a statement posted to its Web site.

No Signal

Reports on Web message boards from subscribers suggested the problem was widespread, with users in various parts of the country saying they were unable to call up XM programming at all or received a faint signal.

XM owns four satellites, all built by Boeing, though the two oldest satellites have now been in orbit for nearly six years and are not used as primary signal transmitters. The problem reportedly occurred when the software update was sent to one of the newer satellites, XM-3, which was launched just over a year ago.

Even a short-term outage could be harmful for XM, which, like its onetime rival and possible merger partner Sirius Satellite Radio — the two hope to complete a US$13 billion merger, but face regulatory hurdles — has struggled to control marketing costs and to keep customer churn rates down.

Because the satellite companies routinely spend a year’s worth of subscription revenue to acquire a new customer, those who leave early are a drag on efforts to get and stay profitable.

Ground Control

Investors did not seem overly concerned about the outage, with XM shares falling just half a percentage point to $11.08 in afternoon trading Tuesday.

XM did not indicate it would make any adjustments to customers’ accounts because of the outage. Subscribers pay $13 per month to receive the satellite service — whose lineup includes sports broadcasts such as Major League Baseball games, talk shows from the likes of Oprah Winfrey and nearly 70 music channels — on receivers in their cars or homes or on portable devices.

The outage is believed to be one of the longest and most widespread in recent history for either XM or Sirius. Satellite systems are typically highly reliable and are often designed to have multiple satellites covering the same area or with backup systems in place in case a single satellite malfunctions.

Hundreds of XM subscribers flocked to the XMFan Web site to discuss the outage, and though some were angry about the loss of service, most of the 50-plus pages of discussion focused on technical aspects of receiving the service, such as whether certain antenna installation were better than others at capturing signals.

Long-Term Impact?

There will likely be little long-term impact from a short-term outage. With only one alternative for satellite service, XM subscribers aren’t likely to jump to Sirius at the drop of a hat, especially since each service has carved out its own programming niches over time.

As for withstanding the outage, XM can take solace in the experience of Research In Motion. That company suffered a similar fate last month when a software update left millions of its users unable to access e-mail on their BlackBerry devices. There has been little to no impact on the company’s competitive position, however.

“One problem, or even an occasional problem, is not going to cause a customer to make a change — there’s an inconvenience factor that comes with switching around,” said Yankee Group analyst Josh Martin, who noted that many satellite radio subscribers see themselves as early adopters and have strong brand affinity.

There was a time when outages were common in the technology-related services world. Early in the evolution of e-commerce, even major sites such as eBay and Amazon.com would occasionally suffer outages, though such problems have become increasingly rare more recently.

Meanwhile, the XM outage could find its way into the debate about whether the proposed merger of the only two satellite radio firms is good for consumers. Some might argue that the outage could be more easily avoided if Sirius and XM are allowed to merge their satellite assets, while others could use the problem to suggest that consumers could be left without any service or choice if a combined company were to suffer a similar problem.

One argument in favor of the merger is that it will eliminate consumer guesswork over which provider will emerge the market leader, JupiterResearch analyst Barry Parr said. Another is that the companies can build a more robust network if they combine their resources. “A merger will decrease any consumer uncertainty over which to choose and whether either service will be around in a couple of years,” he said.

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