Thursday, April 27, 2006

FTC Investigating XM

April 27, 2006

XM satellite Radio seems to be in a bit of hot water with the Federal Trade Commission (FTC).

for those that are not familiar, the FTC is a government agency charged with protecting the American consumer.

XM did not shed much light on the reason for the FTC complaint, but some speculation has already made the rounds.

XM said it received a letter from the U.S. Federal Trade Commission on April 25 stating that they were looking into whether XM's activities comply with various rules, including the Telemarketing Sales Rule and the Truth in Lending Act.

XM executives stated that it was a "pretty general inquiry" and that the company would soon contact the agency to inquire about their concerns.

the 8k filed by XM with the SEC stated the following:

In the ordinary course of business, we become aware from time to time of claims, potential claims or investigations, or may become party to legal proceedings arising out of various matters, such as contract matters, employment related matters, issues relating to our repeater network, product liability issues, copyright, patent, trademark or other intellectual property matters and other federal regulatory matters.

On April 25, 2006, we received a letter from the Federal Communications Commission stating that its Office of Engineering and Technology Laboratory has tested the Delphi XM SKYFi2 radio and has determined that its transmitter is not in compliance with the applicable emission limits. The letter seeks information from us regarding the testing, emissions and other matters relating to this radio. We are conducting an internal review, and anticipate responding to the letter shortly and cooperating fully.

Also on April 25, 2006, we received a letter from the Federal Trade Commission stating that they are conducting an inquiry into whether our activities are in compliance with various acts, including the FTC Act, the Telemarketing Sales Rule, the Truth in Lending Act and the CAN-SPAM Act. This letter requests information about a variety of our marketing activities, including free trial periods, rebates, telemarketing activities, billing and customer complaints. We are conducting an internal review of these matters, and anticipate responding to the letter shortly and cooperating fully with this investigation.

XM believes that it is too early in the process to determine the significance, if any, of these matters to our business, consolidated results of operations or financial position.

The most common thread of the speculation is that initial complaints were centered around the practice of trying to sign OEM promotional subscribers to the XM service. This speculation seems well placed given that XM stated that the FTC is interested in XM's telemarketing practices. What specific violations are alleged are as yet unknown, but may include techniques, or even telemarketing to individuals on the National Do Not Call Registry. It does appear that the FTC is requesting information that would pertain to several aspects of XM's marketing practices.

At this point it is to early to tell what the repercussions may be, but the potential for penalties and fines does exist.

The link for this write up is http://tinyurl.com/mjq69

4/27/2006 09:30:00 PM

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