Satellite radio is a radical innovation that began in 1992 when the U. Federal Communications Commission (FCC) allocated a portion of the S-band spectrum for nationwide broadcasting of a satellite based Digital Audio Radio Service (DARS). In 1997, two companies, XM Satellite Radio Holding Inc. (XM) and Sirius Radio Inc (Sirius) purchased exclusive rights to broadcast over this band for over $80 million each. Since the FCC had licensed no other spectrum for satellite radio purposes, XM and Sirius face no near-term threat of additional competition. XM and Sirius are also cushioned by the four-year gap it will take new entrants to assemble the infrastructure if the FCC auctions off additional DARS spectrum in the future.
So the race was between XM and Sirius, and XM was able to take the lead early on by offering service nearly five months before Sirius. With its aggressive entry into the market, XM attracted 30,000 subscribers after just seven weeks of operation, while Sirius was still wrestling with its chipsets. Though there are similarities between the technological components and services offered by XM and Sirius, overall, each company has a different plan for its broadcasting system. XM's ground station transmits a signal to two geostationary satellites, dubbed "Rock" and "Roll," which bounce the signal to 1,700 radio repeaters nationwide. In contrast, Sirius uses three satellites in elliptical orbit. With a higher elevation angles than XM, Sirius requires only 100 repeater stations to ensure good reception.
With 1600 fewer repeater stations to build and maintain, Sirius has a competitive advantage over XM in terms of technology. The total cost of satellites and repeater stations for XM and Sirius is $780 and $816 million respectively. Although Sirius had higher fixed costs early on, XM faces higher recurring repeater expenses each year. In an industry that relies on customer acceptance and satisfaction, sustainable competitive advantage will lie not in maintenance savings, but in the quality of service that can be guaranteed to customers.
