New York City based SIRIUS Satellite Radio (SIRI) finished 2006 with 6 million subscribers, slightly below earlier expectations during the year, but inline with revised projections.

The possibility of a merger with its larger and more established Washington D.C. based rival, XM Satellite Radio (XMSR), has pushed shares of SIRIUS into the $4 range and may have investors questioning whether or not the stock climb has reached its plateau or is simply beginning its ascent.

The speculation of merger talks along with increases in SIRIUS and XM subscribers has helped push their share prices up 13% and 12.7% respectively since the beginning of the year.

SIRIUS' subscriber base climbed an impressive 82% towards reaching its 6 million subscribers.

XM finished 2006 with 7.6 million subscribers, just below its target of an estimated 7.8 million for the year.

Pricing for SIRIUS and XM subscription services are in sync. For example subscribers of either service can buy a 1-Year Package for $142.45 or a two year package for $271.95 or simply pay a monthly fee of $12.95.

Both SIRIUS and XM also offer multi-radio/family plans at $6.99 per month.

Despite the competitive pricing and growing fan base, the story of SIRIUS and XM has been that the spending spree both companies engaged in to launch their services and entice high profile talent has contributed to the cash incineration that has made profits elusive for both companies.

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However, the story of the two satellite radio stations appears to be turning the corner. Top line revenues for SIRIUS have surged, up 150% from its 3rd quarter 2005 total of $67 million to $167 million for the same time period in 2006. While the revenues were not enough to enable SIRIUS to earn a profit, it has steadily lowered negative earnings to the point where positive territory seems to be only a few quarters away.

XM revenues also increased on a similar trajectory, rising 50% during the same time period to reach $240 million at the end of its 3rd quarter in 2006. On an earnings basis, XM is also still in the red, but it appears even closer to profits than SIRIUS.

Regulatory and anti-trust issues are being hurled back and forth concerning whether or not XM and SIRIUS will be allowed to merge. A Democratic Congress and House may see the deal as an impediment to competition and let the free market decide the fate of each.

The benefit to consumers and shareholders of separate entities include the continued focus on quality programming, reasonable pricing and service enhancements the each will need to continue to attract listeners on the fence between satellite and good old FM/AM radio.

Conventional wisdom may have prompted most investors to bail out of SIRIUS and XM just before the bad news of 2006 turns into the bright future of 2007 for both companies. Perhaps those that have been willing to stay the course may see their just reward after all.

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