Gary Parsons - Chairman of the Board Hugh Panero - Chief Executive Officer Nate Davis - President and Chief Operating Officer Joseph J. Euteneuer - Executive Vice President and Chief Financial Officer Steve Cook - Executive Vice President, Automotive Joseph Titlebaum - General Counsel

Craig Moffett - Sanford C. Bernstein & Company, Inc. Jonathan Jacoby - Banc of America Securities Vijay Jayant - Lehman Brothers Mark Lynch - Goldman Sachs Robert Peck - Bear, Stearns & Co. Jason Helfstein - CIBC World Markets Barton Crockett - JPMorgan Chase & Co. Eileen Furukawa - Citigroup

Good morning, my name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the XM Satellite Radio second quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions) Thank you. I will now turn the call over to Mr. Titlebaum, General Counsel. Sir, you may begin

Hello, everyone, this is Joe Titlebaum, General Counsel of XM Satellite Radio. Before we begin our prepared remarks, I would like to remind everyone that certain information on this call may contain forward-looking statements. Due to a number of factors, our actual results may differ materially from those projected in such forward-looking statements. Those factors include future demand for the company's service, the company’s dependence on technology and third-party vendors, and the potential need for additional financing, as well as other risks described in XM Satellite Radio Holdings Inc.’s Form 10-K filed with the Securities and Exchange Commission on March 3, 2006. Copies of this filing are available online and upon request from XM Radio's Investor Relations department. I will now turn the call over to Hugh Panero, CEO of XM Satellite Radio.

Good morning, everyone, and thank you for joining us. On the call with me are: Gary Parsons, Chairman; Nate Davis, our new President and Chief Operating Officer; Joe Euteneuer, our Chief Financial Officer; Steve Cook, Executive Vice President of Automotive; Eric Logan, Executive Vice President of Programming; and Joe Titlebaum, whom you just heard from. At the onset, I would like to make some basic points regarding XM Radio, the satellite radio industry, and our current position. XM created the satellite radio category as a major consumer business. We have been the industry leaders since the first satellite radio subscriber in November, 2001. By the end of the second quarter of 2006, we are generating more than $225 million a quarter in revenue, with total revenue of more than $900 million expected for the full year 2006. We currently have more than 7 million subscribers. This quarter alone, nearly 1 million consumers -- that is new gross subscriber additions -- became new XM Radio subscribers. Our high customer satisfaction, appealing content, and far-reaching distribution channels positions us to continue significant growth on a sustained basis. At the same time, and as most of you are well aware, we face a number of marketplace, operational and regulatory issues. We will navigate through these issues with the focus and determination that enabled us to launch and lead this emerging industry. Over the next few minutes, I will review XM’s results for the second quarter 2006, describe some significant management improvements, discuss the issues to which I just referred, and update you on recent programming initiatives, including preparation for the launch of our Oprah and Friends channel. Then I will turn the call over to Joe Euteneuer to discuss our financial and operating results in much more detail. First, let me introduce you to Nate Davis, XM’s new President and Chief Operating Officer. Nate has an impressive track record in operational management and excellent experience in finance, technology, and launching innovative products for major telecommunications companies. Nate strengthens the current management team which has brought us this level of subscriber penetration. He will have direct responsibility for retail and automotive sales and marketing, finance, engineering and technology, listener care, IT, and human resources. Nate knows where the levers are in our industry. He has been a member of the board since 1999, and brings an in-depth understanding of each major element of the XM business. Nate.

Thank you, Hugh. First, let me say thanks to all of the employees, shareholders, partners and customers who have welcomed me to the XM family. I would like to let you all know that I am passionate about XM and the wonderful content it delivers to its subscribers. I have been here for four days and I am enjoying my close interaction with Hugh, with Gary and the rest of the XM team as we attack each issue head on, whether it is a marketplace or an operational issue. I realize you want to know my plans, but I will be able to provide more insight on our business progress in the next earnings call, when I have a couple of months of hands-on XM experience under my belt. I know what it is like to manage large, high-growth subscription-based services, and I think my capabilities will help secure the type of positive, operational performance XM has been known for over the years, and which has suffered some setbacks in this quarter.

Now let's review the results for the second quarter of 2006. In general, our acquisition of subscribers comes through two major channels: the OEM channel, where satellite radio is built into new cars; and the after-market channel, where satellite radios is a purchase for the home, automobile and portable use. We have traditionally focused only on net subscriber additions, but to really understand the dynamics of the marketplace, we need to go one level deeper. Net subscriber additions represent the number of new subscribers who signed up during the period minus all those who disconnected. This metric is critical, since it drives revenue growth. Gross subscriber additions, the number before subtracting disconnects, is the best indicator of actual marketplace success in attracting new customers, whether they were OEMs or after-market subs. During the second quarter of 2006, we added a total of 926,000 gross subscriber additions, slightly lower than the same period last year of 946,000. This number was significantly lower than we had projected, and when reduced by higher-than-expected churn, resulted in a disappointing net subscriber addition number of approximately 400,000. To put it another way, we were essentially flat from year to year in attracting new subscribers, but with our higher churn on a substantially larger base in 2006 compared to 2005, we only added about 400,000 net new subscribers versus the 647,000 a year ago. Note that any comparison between XM and its competitor in terms of net subscriber additions are also skewed by each company's different subscriber base. Our competitor’s substantially lower base resulted in fewer disconnects, even when churn rates are the same. Several factors affected results in the second quarter of 2006, and I will comment on them briefly, as well as provide some insight into the management actions and strategies XM has taken to improve performance going forward. Turning first to the after-market or retail segment, we attracted 409,000 new subscribers during the second quarter of 2006, roughly in line with the 422,000 gross subscriber additions in the second quarter of 2005. We added 168,000 net new after-market subscribers during the second quarter of ’06, significantly lower than the 316,000 added during the second quarter of 2005. As we noted when reporting second quarter subscriber numbers in early July, one factor affecting the retail marketplace was an overall weakening of demand in the satellite radio categories. MPD data, which includes radio sold in the retail channel and does not include Wal-Mart, indicates a steady decline in year-over-year monthly unit growth [in this] category, from 120% in January 2006 to single-digit growth in May and June. Our projections for the second quarter 2006 does not anticipate this significant decline in growth rates between the first and the second quarters. We are closely watching this trend in conjunction with related macroeconomic factors, as we plan and execute our retail strategy across the rest of the year. Furthermore, our competitor captured market share from us in the retail segments in the latter stage of the second quarter. We find this unacceptable, and our focused objective is to regain retail market share during the remainder of the year. Also impacting our retail market results was the less-than-full availability of XM Radios across the retail distribution channel. During the second quarter, our new breakthrough XM MP3 radios were delayed and in limited supply at retail for a variety of reasons, mostly product refinement and testing. At the same time, we have been addressing inquiries from the Federal Communications Commission related to the wireless FM modulators in our popular plug-and-play radios, including the Roady XP, Express, and Sky-Fi Tune Sportscaster. During this quarter, we temporarily halted shipments of these plug-and-play radios, causing sporadic inventory shortages at certain retailers. Performance during the second quarter of 2006 in the OEM segment had interesting dynamics of its own. XM captured 518,000 automotive subscribers in the second quarter of 2006, essentially on par with the 524,000 gross subs added in the same period last year. Significantly, last year’s second quarter OEM performance was very strong due to GM’s employee discount sales program. Nearly matching that performance this year evidence is solid continuing demand for vehicles incorporating factory-installed XM radios. However, the net subscriber additions were 230,000 subscribers compared to the 331,000 added in the second quarter of 2005. While our continued ability to achieve a conversion rate above 50% confirms the effectiveness of this distribution channel, we took actions during the quarter to strengthen and restructure, and revamp our sales-and-marketing group by establishing a dedicated automotive business unit, headed by Steve Cook, to manage our partnerships with General Motors, Honda, Toyota, Hyundai, and Nissan. Our OEM partners represent nearly 60% of the vehicle sales in the United States, or roughly 10 million vehicles per year. To date, our partners have installed more than 5 million cars with XM, and while 2006 is a staging year for our newer partners, they are poised for significant production growth of XM factory-installed vehicles in 2007 and beyond. Let's talk about GM. They continue to drive penetration across its vehicle lines, including its very successful redesigned SVU and truck platform. Honda will extend penetration to the Civic and the CRV, while Acura will expand the nav-traffic service to additional models, including the all-new RDX. In one of the most aggressive roll-outs undertaken for a satellite radio factory-installation program, Hyundai plans to make XM standard equipment across its entire vehicle line. The rollout begins this fourth quarter with four of its most popular models, representing more than 60% of Hyundai's annual volume. Following close behind those models, Hyundai will launch the remaining five models in its factory installation program in 2007. Turning to Toyota, XM will be factory-installed on the flagship Lexus LS series, where both XM Radio and our nav-traffic service will be standard equipment on all 2007 LS-460s with navigation, the LS-460L, and the 2008 LS-600HL. Lastly, Nissan will launch two high-volume models this fall, including the Infinity G35 with factory-installed XM and nav-traffic. This is the first phase of our broad rollout across Nissan and Infinity models, with XM exclusivity beginning in the third quarter of 2007. Looking ahead to our marketing efforts for the second half of the year, we will focus on promoting our expanding content to potential customers, improving XM's customer service, and being more competitive with our product offering in retail stores, as well as working with our automotive partners to continue to embed our XM branding into the automotive sales experience. While emphasizing our terrific music and talk content, we will generate excitement around the launch of Oprah and Friends channel that will have great appeal to women. We intend to be intelligently competitive at retail and regain market share while ensuring we sell our service and not just hardware products. To strengthen our retail marketing and branding markets, we recently announced the hiring of My-Chau Nguyen, formerly of Sprint and Nextel, as Senior Vice President of Marketing, Planning and Research; and Sean Connolly, formerly of Intel, as Vice President, Brand Management and Media. Both will report to a chief marketing officer, who will be appointed by Nate Davis in the coming months, to oversee all sales and marketing for the company, including media, branding and retention programs. We will be refining our marketing message and branding going into the important fourth quarter. We are also working to improve retention and customer service efforts, which must become part of an overall excellent XM experience. Now that I have commented on the second quarter results in the after-market and the OEM channels, as well as providing insight into our upcoming operational and marketing initiatives, I will address our current regulatory issues. There has been an issue recently with a broad range of wireless FM modulator consumer electronics products and their compliance with FCC emission standards. XM plug-and-plays fall into that category and we are working our way through the FCC issues, resulting in current production stoppages, some temporary shortages of particular plug-and-play products, as well as added expense in the ongoing redesign of the radios to be fully compliant with FCC standards. Our technology team is working aggressively to complete design or installation modifications as appropriate, conduct additional testing for the XM radios, and address uncertainties regarding emissions variability with testing results. Next, let me update you on the legal challenges by the record industry to our new portable devices with XM MP3 capabilities, and storage of up to 50 hours of XM broadcast for later listening. XM is a high-profile company offering bold, innovative products that people love. This is unsettling to some traditional businesses in our space, and we have met regulatory challenges vigorously over the years. Our latest devices have triggered legal challenges from the record labels, along with initiatives in Congress launched by the RIAA to inhibit our progress. On July 17th, we asked the federal judge to dismiss the record labels’ lawsuit on the grounds that we -- and our subscribers, more importantly -- have specific statutory protection under the Audio Recording Act to use the functionality in our devices for their own personal use. Notwithstanding this litigation, XM has been a strong business partner of the music industry throughout our history, paying significant fees for performance rights to record labels, composers, authors and publishers. Evidence of that constructive relationship is our recently announced, long-term music licensing agreement with ASCAP, the American Society of Composers, Authors and Publishers. This five-year renewal, consistent with our historical arrangement, provides a fair return to these critical providers of XM content and enables consumers to receive the products of these creative forces. I will now focus on a continuing bright spot in our business, our outstanding programming content where we are well-positioned for the long-term health and growth of the company. Our content gets better every day. To anyone who wants to better understanding our programming strategy, I refer you to the in-depth presentation Eric Logan, Executive Vice President of Programming, gave in June to the investment community, which is currently posted on our website. Right now, we are in the midst of our most popular sports programming -- full coverage of the Major League Baseball season, we just completed extensive broadcasts of the All-Star Festivities, featuring the XM Futures Game, the popular Home Run Derby, and the All-Star Game in Pittsburgh. Turning to soccer, while the nation was captivated by the 2006 FIFA World Cup Soccer, XM was proud to be its exclusive satellite radio home, bringing for the first time both English and Spanish coverage to a nationwide radio audience. Approximately 2 million listeners tuned in to our World Cup broadcast last month. Golf fans were pleased last month with our coverage of the U.S. Open Golf Tournament from Winged Foot and last week's broadcast of the British opening its championship from Royal Liverpool. Additionally, XM provided another reason why it is the leader in sports with the most live play-by-play’s and best sporting events when it concluded its covered of the National Hockey League Stanley Cup Play-offs, our first year of a 10-year partnership with the National Hockey League, which becomes exclusive after next season. In the music area, our launch of Bob Dylan Show, theme-timed radio hour has generated critical acclaim, coverage and reviews. Not only has the show been a hit with the media, but with our subscribers as well. More than 500,000 listeners tuned in to the first show. Within a month, that audience grew to 1.7 million listeners, making the Bob Dylan Show one of the most successful shows launched in XM history. Moving to an update on the Opie and Anthony show, the syndication thus far has been a major coup for XM. Its availability in seven major markets at launch and the addition of 12 more markets have expanded the show’s exposure, XM’s branding, and O&A’s exclusive content. Within the last 90 days, customers citing O&A as a reason they subscribe to XM have doubled. Moreover, O&A broadcast radio ratings are on the rise, and thus we expect the XM brand, which is embedded in those broadcasts, to drive continued awareness and ultimately attract more subscribers desiring XM’s exclusive O&A content. Next, let me speak to the much-anticipated Oprah and Friends channel. I have said many times when we were completing our programming lineup that Oprah was the last piece of our programming puzzle. We are less than two months away from the launch of the Oprah and Friends channel on September 25th, and it sounds even better than we anticipated. Earlier this month, we began broadcasting a preview to give subscribers a taste of the Oprah and Friends breakthrough programming. This channel will be a centerpiece for our marketing efforts in the coming months. Finally, I would like to discuss our guidance with regard to subscribers and other significant parameters. With regulatory uncertainties concerning plug-and-play radios, internal issues I have described, and our current performance in the marketplace, we believe it is prudent to reduce our existing guidance to a range of 8.2 million to 7.7 million subscribers at year-end 2006. With this guidance on subscribers, we still expect to achieve positive cash flow from operations in the fourth quarter 2006 and the full-year 2007, although our ability to do so becomes very challenging, towards the lower end of the subscriber range. By the end of the third quarter, we should have a much-better handle on the overall regulatory situation and availability of product for the fourth quarter, as well as retail trends. At that time, we will refine our guidance and narrow the range of uncertainty. Consistent with the above range of subscribers, 2006 subscription revenue could vary from approximately $810 million to $820 million, and our adjusted EBITDA loss, excluding items such as stock-based compensation, de-leveraging expenses, and affiliate losses, could vary from approximately $205 million to $230 million. As I turn the call over to Joe, let me reiterate that I, along with his team, am as passionate about XM as when we launched the service nearly five years ago. Seven million subscribers agree, and together we have made XM the consistent leader in the satellite radio industry. Joe. Joseph J. Euteneuer: Thanks, Hugh. Notwithstanding the challenges we faced in the second quarter, as Hugh referenced, the fundamentals of our business remain strong and attractive on multiple levels. We had ARPU over $10 for the second consecutive quarter. Our subscription margin stayed in the high 60% range -- at 68% even during the complex transition of our customer service vendors. Our fixed costs were flat compared to the first quarter of 2006. Our pre-marketing EBITDA, excluding stock-based compensation, continued to grow, hitting $60 million this quarter, $10 million more than the first quarter of 2006. Most importantly, we continued to acquire subscribers on a cost-effective basis. Our SAC, while elevated over the first quarter, remains low and leads the industry by a wide margin. Before I get into the results, I wanted to point out that we have substantially expanded our financial and operating statistic disclosures, in an effort to provide additional visibility into our business. We will provide historical data on these new disclosures on our website when we release our 10-Q. For the balance of my discussion, I refer you to the financial attachments to the earnings press release. Total revenue in the second quarter of 2006 grew 82% to $228 million compared to the $125 million in the same period in 2005, as subscribers grew 56% compared to 2005, and ARPU increased $0.73. The annual subscription revenue run-rate for the second quarter of 2006 increased to nearly $810 million. In the second quarter 2006, ARPU was $10.08, flat compared to the first quarter and up compared to the $9.35 during the second quarter of 2005. Note that this ARPU number includes a content-revenue impact of new, mail-in rebate marketing campaigns and promotions accounted for as marketing expense against revenue, rather than being included in SAC. Had these marketing expenses been included in SAC, ARPU would have been higher by $0.03, and SAC would have been higher by $1.00 for the second quarter. Annual and multi-year pre-payment plan subscriptions represent 42% of XM subscribers compared to 40% at the end of the second quarter of 2005. The average pre-payment period for new subscribers remains at nine months. Family plan subscribers have grown to 21% of our subscriber base compared to 15% at the end of the second quarter of 2005 and 20% at the end of the first quarter of 2006. The churn rate on self-paying subscribers for the second quarter of 2006 was 1.83%, up from the 1.64% in the first quarter of 2006. Please note that churn excludes OEM promotional subscribers. A number of issues came to the forefront in the second quarter which influenced our churn rate. First of all, we ended our relationship with our previous customer care vendor and began the transition to a new customer care provider, negatively impacting churn. The second quarter was also the anniversary of our 2005 rate increase. Consequently, annual customers showed a slight rise in churn. While we previously stated we expected churn to increase somewhat in 2006 relative to 2005, this second quarter was higher than anticipated. We do expect churn to improve by the end of 2006, as our customer service and business processes improve. Most encouragingly, our subscribers continue to tell us they are extremely satisfied with our programming content. Our OEM distribution continues to be an excellent way to expose customers to XM. The OEM conversion rate in the second quarter of 2006 was roughly the same as the last two quarters at 54.5%. We do expect the conversion rate to decline temporarily to about 52% during the third quarter, due to certain operational process issues. We have already corrected the underlying process problem and we expect no long-term impact into 2007. Our adjusted pre-marketing EBITDA, excluding stock-based compensation, was $60 million in the second quarter of 2006, compared to $50 million in the first quarter of 2006 and $10 million in the second quarter of 2005. The improving trend is a strong indicator of the longer-term ability of our business to generate substantial cash. Pre-marketing EBITDA captures the positive trends in subscription revenue, improving margins and fixed cost leverage. One of the key drivers of our growth in pre-marketing EBITDA in the second quarter was the lack of fixed-cost growth compared to the first quarter. Fixed costs were $102 million during the second quarter of 2006, flat from the $102 million in the first quarter of 2006 and up from the $68 million in the same period of last year, primarily as a result of the content added in 2005 to our channel. I will now address subscriber acquisition costs, or SAC. XM SAC for the second quarter of 2006 was $64 compared to $62 in the first quarter of 2006. Second quarter SAC was affected by $5 million of charges related to addressing FCC issues on existing inventory, which equates to about $4.00 per unit increase in SAC. Even with these additional charges, our SAC costs remain dramatically lower than our competitors. While the gross and net addition numbers for the quarter are disappointing, the superior cost efficiency of our marketing efforts is clear. The broader measure of cost per gross addition, or CPGA, includes SAC, which we just discussed, and discretionary advertising and marketing costs. CPGA for the second quarter of 2006 was $112, which includes the additional $4 for FCC expenses compared to the $94 in the first quarter of 2006. CPGA was higher than expected due to lower growth subscriber additions, as well as the previously noted FCC expenses. Adjusted EBITDA, as defined in the financial attachments to the earnings press release in the second quarter of 2006, was a loss of $46 million, and was significantly better than the second quarter of 2005 loss of $88 million, and an improvement over the first quarter 2006 loss of $49 million. Now, I would like to discuss some key non-operating items affecting our results. We have been marking to market our common stock investment in WorldSpace, and are required to assess this investment for impairment on a regular basis. Due to the decline in the quoted market price of the shares of WorldSpace from its IPO price of $21 per share to the second quarter ending share price of $3.58, we have recorded an other-than-temporary impairment to this investment, and have reduced the carrying value by $19 million. Please be aware when looking at our cash flow statement, which will be released shortly with our 10-Q, that cash flow from operations is including an out-flow of $237 million related to the pre-payment of the GM liability. The financing section reflects our closing on May 1st of an $800 million debt offering, consisting of new, unsecured floating- and fixed-rate bonds, due 2013 and 2014 respectively. The net proceeds were utilized to redeem or purchase all of our outstanding floating-rate 12% and 14% secured notes, and to pay GM $237 million to retire $320 million in fixed contractual obligations, due 2007 through 2009. As is customary in these types of refinancing transactions, we will be shortly filing a S-4 registration statement with respect to this debt. In addition, XM established a secured $250 million revolving credit facility with a group of blue-chip banks, and increased its credit facility with GM to $150 million. The refinancing replaced a variety of higher-cost, secure-debt instruments we issued in the early stages of the company's development with lower interest rate, unsecured debt, to result in a simplification of our capital structure and balance sheet in a cash-neutral fashion, and a reduction in our overall cost of capital. We ended the second quarter with overall liquidity of over $430 million of cash and $400 million of stand-by credit facilities, subject to converting an additional $25 million of the 10% convertible notes, which we expect to complete in the near-future. We incurred a non-cash de-leveraging charge on the income statement of approximately $82 million in the second quarter -- $72 million related to the refinancing and $10 million related to the conversion in April of $27.7 million of the 10% convertible notes into 9.1 million shares. Now, let me turn the call back over to Hugh.

My overall message is straightforward -- the fundamentals of the business are sound. Our product, outstanding entertainment content, continues to be well-received by the marketplace. We have to, and will, strengthen our marketing and execution at retail. We will improve customer service and thereby bring churn back to normal levels. We will solve our temporary plug-and-play compliance issues. We have augmented our management team in the areas needed, and will retain our industry leadership into the future. At the end of the third quarter, we will report on these improvements and refine our guidance. We are now ready for your questions.

(Operator Instructions) Your first question comes from Craig Moffett with Sanford C. Bernstein. Craig Moffett - Sanford C. Bernstein & Company, Inc.: I want to drill-down on churn a little bit, if I could, both self-paid churn and conversion rate. On the self-paid churn, can you give us any additional information about churn by cohort group? Are you seeing different churn patterns, either in different demographic pools, in different aging or seasoning pools, if you will, for subscribers acquired one year ago, two years ago and what have you? Then on conversion rate, a similar theme. I am trying to get an understanding of what you are seeing based on the demographics of car buyers. Can you give us any additional information on the conversion rates you are seeing in high-end cars, mid-range cars, and lower-end vehicles?

Those are good questions. On churn, I think our analysis of it is that the churn right now is more operationally-based, as was affected by our change-over to a new customer service vendor, where there are operational procedures that you would do on a very regular basis as it relates to both voluntary and non-pays. Because we were winding down one particular vendor and starting up another one, we fell flat in that area, which was part of that conversion. We have not seen any specific cohort base analysis. I think that our general problems right now are operational rather than seeing some sort of a softness that relates to some particular kind of promotion that we were out there, or a particular demographic group. Craig Moffett - Sanford C. Bernstein & Company, Inc.: Just to drill down on that for a second, Hugh -- you mentioned in the call the strength of your customer satisfaction numbers. Have you seen any erosion in customer satisfaction?

No, I think that our voluntary disconnects has remained relatively constant. Where you really get affected by operational issues is on the non-pays, where if you are not effectively contacting them in a regular way, what we find is there are a lot of people who have moved into a non-paid status because we did not effectively communicate with them in the process that we have prior to them being turned off. Craig Moffett - Sanford C. Bernstein & Company, Inc.: That would sound like you have pretty high confidence in being able to lower the churn rate going forward?

Yes, and I think one of the things we want to do with our revised management structure and marketing structure is to focus a lot more attention. We now have a dedicated group that we put in place over the last two months or so dedicated just to focus on these areas. Obviously Nate will provide a lot of input into this area as well. Craig Moffett - Sanford C. Bernstein & Company, Inc.: On the conversion rate questions?

Actually, let me hit that one for a second. Conversion rate, as you noticed, remained absolutely stable this quarter from last quarter and the quarter before -- actually notched up a tiny bit -- and direct to your question of are we seeing any changes or differences between the high-end vehicle purchasers or low-end -- no changes. We have always articulated that there has tended to be a higher conversion rate that exists in the more expensive vehicles than the lesser expensive vehicles, or entry-level vehicles, but that has not been changing over time. Craig Moffett - Sanford C. Bernstein & Company, Inc.: Thank you.

Your next question comes from Jonathan Jacoby with Banc of America Securities. Jonathan Jacoby - Banc of America Securities: First question, this is focusing on churn again, but it looks like, just back-of-the-envelope, that retail is running at a much higher churn than OEM. I want to see if our numbers fit with yours. The second question is on the OEMs. Just listening to the commentary, is it perhaps better to expect a bigger ramp for OEMs, especially on exclusivity, to pick up in the back-half of next year? Thank you.

Could you repeat your last question? We sort of lost you. Jonathan Jacoby - Banc of America Securities: On the OEM picture, I know 2006 is a staging year, but listening to your commentary, it sounds like perhaps the bigger ramp next year is going to take place in the back-half of next year, especially when you are talking about exclusivity. I am wondering if that is how we should be modeling the OEM picture for 2007.

I would say that is probably a pretty good assumption there, Jonathan. It will depend on individual automakers, because certain ones will be rolling out a little bit more strongly in the first part of the year. Obviously we expect the last part of the year to be the somewhat heavier concentrations, from that standpoint. Jonathan Jacoby - Banc of America Securities: Then on churn?

On your churn, it is just slightly higher in the after-market, but really no substantial difference. [Multiple Speakers] …self-paying subs, the churn, whether you are a self-paying converted auto customer or a retail after-market customer, it is basically the same -- not dramatically different. Jonathan Jacoby - Banc of America Securities: Then just a quick follow-up on your retail market share goal. Do you guys see it as simply an execution issue? Is it product availability being hampered by the FCC? Or do you think your competitor truly has some content advantage here and that is showing up in the retail marketplace?

I think it is a combination of issues. Clearly in the second quarter there were product shortages in the marketplace. There are competitive issues on some pricing right now that we would want to react to in an intelligent way. Our competitor has $24 radios available at Radio Shack at the low-end. They have $110 rebate on their high-end with their S50. We obviously do not want to play, necessarily, in that game, but we will respond with what we think are intelligent strategies that do not just sell radios but get subscriptions. We will work on that and lay that out as we move forward. Jonathan Jacoby - Banc of America Securities: Thank you.

Your next question comes from Vijay Jayant with Lehman Brothers. Vijay Jayant - Lehman Brothers: Thank you. Hugh, given your recent review with the FCC, can you give us any timeline when you expect to be back in front of them, to sort of get confirmation on your product readiness for the marketplace? On the heels of that, how much real inventory is there right now? Where can we think about the downside on your guidance if you do not get approval on your product?

Vijay, this is Gary responding to that, because I have taken more of that issue, to try to work it. When you ask when are we next back in front of the FCC, we are almost there on a daily basis, it seems, having discussions on that. I think you will hear a similar thing on the Sirius conference call as well. There are uncertainties relative to exactly the testing criteria that has to be met for that. Both companies are scrambling to ensure that we do in fact completely satisfy the FCC’s needs and requirements on those testing elements. Some of our products are in a better inventory situation than others, particularly the Audiobox Express is in little supply, and that is a very strong product so we need to get more of that out there. The key to us is making sure that we are able to respond to that and have significant product in the fourth quarter for the holiday selling season. Obviously that issue is the one primary one that is a question relative to the low-end of the guidance range. Vijay Jayant - Lehman Brothers: Gary, how much window would you need between filling the channels? Is it like a month before you can fill the channels in terms of any form of freight that has to come from the manufacturer? What is that buffer?

It tends to be a bit more than a month, Vijay. Obviously you can compress some of these schedules by air shipping and things like that. That adds some additional cost when you do it, but we would bear those costs if that is what it took to make sure that we have product into the marketplace at that point in time. Vijay Jayant - Lehman Brothers: Thank you.

Your next question comes from Mark Lynch with Goldman Sachs. Mark Lynch - Goldman Sachs: I was wondering, what percent of your retail net adds do you think are buying car kits that are really OEM and direct, if you will? Then, assuming some displacement, what is the plan to maintain retail net adds as the subs from the OEM channel increase?

Could you repeat the question one more time?

I think he was asking how much do the plug-and-play radios contribute to our overall retail volume -- is that what you are asking? Mark Lynch - Goldman Sachs: Exactly, and do you think there is some displacement there as your subs from OEM increase and ’07 and ’08?

The second part of that first -- I do not think you will see that much of a displacement on the basis. If we were an 80% of the market-share type of situation, that would be different, but the whole satellite radio industry is only 4% or 5% of the available thing, so…

But over the long-term, with the kind of ramp that we expect over the next number of years in the OEM category, we see that the OEM category with a factory-installed radio becoming a fairly significant part of our business.

Then the second piece of it, how many plug-and-play radios, I think we have mentioned before in previous calls that generally, the plug-and-play category is about 70% or so of retail installations, but a significant number of those plug-and-plays, just so you understand it, either use a cassette tape adapter, which does not require this FM modulator issue, and also a significant portion to a professional install that is hardwired in that also is not related to the FM modulator issue. Those are the general numbers. Mark Lynch - Goldman Sachs: Okay. Just a follow-up about the Major League Baseball offering, and what you think the impact on gross adds and churn was this year versus last year, and the overall return profile of that deal. Has it changed since your initial expectations at all or no?

No, I think it is great, and some of the research we have done, we still see between 17% or so of the people saying that they signed up for Major League Baseball. I think clearly we have a big bump, as you do with the launch of any new products when you first introduce them, so obviously we got a lot of press and a lot of energy around baseball. I think that the word-of-mouth around it is pretty terrific. I think some of the shows that we are doing right now, we had Bud Selig on last week, obviously there is a lot of controversy about Bonds that comes out, and we generate press on it, but we are still extremely excited. We think it is, fundamentally, the foundation of our sports package and it is a big part of our business. Mark Lynch - Goldman Sachs: Thank you.

Our next question comes from Bob Peck with Bear, Stearns. Robert Peck - Bear, Stearns & Co.: Switching topics here from supply side to demand side, could you talk to us a little bit about how much qualitatively you think subscribers, both in this quarter and going forward, have been affected by supplies thus far? When we think about iPods having grown about 30% or so year over year for this last quarter, could you talk about the health, more particularly for satellite radio, do you think XM is still on pace for, give-or-take, high-teens or 20 million subscribers in 2010? Thank you.

I think we are still on pace for high-teens, or some other number -- clearly if we went to the low-end of the range that we talked about, that would impact some of those numbers. I think the health of the business in terms of our product is still very strong. I think the simplicity of the product is something that we have to communicate much better to the street. I think what is happening at retail right now is, if you read some of the overall consumer spending analysis that has been done, and you look at some of the actual retail stores like the Wal-Mart’s and the Target’s and so on, a lot of them who had projected same-store sales growth like last year have now halved their projections. I think iPod is a unique product, and I think it does well. I think we have to do a better job, which we intend to do, at regaining market share, but I think over the long-term, we have a great product. I think even the simplicity of it is something we have to communicate a lot better to people going forward. Robert Peck - Bear, Stearns & Co.: Thank you.

Your next question comes from Jason Helfstein with CIBC World Markets. Jason Helfstein - CIBC World Markets: A few questions -- one, if you can just explain this third-quarter conversion issue a little more? Why does the conversion rate do down? I think you said 52%, but just go into more detail. The second question, Hugh, last quarter I asked you about the company's lobbying effort and just how the company continues to be blindsided by some of the larger efforts by some of your competitors. I only expect that to get worse longer-term. You told me, you said on the call, “look, we are in Washington, we get it, don’t worry” but it seems like it has continued to go against you. Could you perhaps talk in a little bit more detail, what are you doing to make sure that the satellite radio’s message is heard by those people at the FCC, in Congress? Does it require you spending more money? Have you engaged outside individuals to help you do that? Thank you.

I will address that one. Clearly we are spending more money in that area, and we have a number of lobbying firms that we work with, and have actually coordinated some of our efforts with Sirius as well. We recently hired a guy named Jeff Blagner, who is a very expert individual on lobbying efforts. He spent an enormous amount of time doing strategic work for a variety of different clients, and we have brought him in-house just recently. Gary and I spend an enormous amount of time on the hill, going back and forth, when it is appropriate. We actually have made in-roads. We are also working with a coalition of groups, such as the consumer electronics association. There are even alliances with people who you really would not even think that we have alliances with because of the similar fear that we have of some of this legislation. We actually have been pretty effective. If you have seen Roll Call, which is what I would call an industry lobbying in the newspaper, is that we actually have ads that appear in there, so we have really ramped up our efforts and our message is being heard. We feel pretty good about it. We are competing against some very, very large lobbying organizations, whether it be the RIAA or others, and we are fighting that fight as we have over a number of years, even just to get satellite radio off the ground. We have ratcheted up that effort.

Let me also just amplify one point that Hugh made, because I have worked pretty closely on this particular issue. Sirius also is being extremely helpful on this front, particularly with the RIAA and frankly even the terrestrial radio industry, relative to some of these music rights things, is strongly on our side. I think it has taken a period of time to marshal this broader force. There is no way that we, or we meaning Sirius together, have the sort of resources to have a major impact without marshalling this larger coalition. It is going very positively. Jason Helfstein - CIBC World Markets: On the OEM question?

You questioned the OEM conversion rates. What we identified was an issue related to the factory activation process with one of our automotive partners. That prevented a block of customers from ever receiving their three-month trial. As you would expect, that group of customers, we saw a very low conversion rate, or we will see a low conversion rate from that group, which is going to temporarily pull down the third quarter results. The problem is fixed. It is not going to affect us beyond that period. We do expect as we get into the fourth quarter to see it rebound. Jason Helfstein - CIBC World Markets: Perhaps just going back to the first question, just to dig in a little deeper. One of the things that the NAB has been doing is funding studies that look into the FM modulator, and I am sure a lot of people saw the study that said 75% or the devices tested by industry failed the FCC standards. Where are you guys as far as using outside vendors to work through that? Do we expect you guys to release any studies about how these things should be tested, just to give a sense of where we are in the process, and hopefully when the outcome comes?

It is interesting. Obviously the NAB is an ally on certain lobbying fronts and is an adversary on other lobbying fronts, but that is how it goes. Relative to that particular study, I would note the one radio they tested of XM’s tested fine, although the other ones were out of compliance on the NAB study. I do not think that you will see us publishing studies or things like this, which are kind of a lobbying technique. Quite frankly, we are working directly with the FCC’s Office of Engineering Technology and the professionals over there, making sure that their testing and the way they want to see the testing is done, and done to their satisfaction on a professional way. We do not really see this as a lobbying effort, back and forth.

However, on other issues, we are more public and more aggressive, and the fact is that there are many artists who are very supportive of XM Radio and therefore, they have voiced their support for XM to counter some of the arguments that have been made by some of our opposition in that area. Jason Helfstein - CIBC World Markets: Thank you very much.

Your next question is from David Bank of RBC Capital Markets. I am sorry, sir, I am showing David withdrew his question. Your next question is from Barton Crockett with JPMorgan. Barton Crockett - JPMorgan Chase & Co.: Thank you very much. I was wondering if you could talk a little bit about what is embedded in your guidance in terms of your view of the retail environment in the crucial fourth quarter of this year. Specifically, is your high-end and low-end, do they envision retail gross additions up or down, and some sense of where you see your industry share by that time. One of the concerns is that you are not at parity now, even as we are in baseball season, although there is a lot of noise around it. In the fall, as we go into a seriously strong NFL -- how do you see that playing out? That would be the first question. The second question is, can you explain how to account for Hyundai when that ramps up? My understanding is those will not actually be subscribers in the same way that we have them through GM and Honda, because of the difference in the way the free trial is handled, that you are not getting paid up-front. How could that affect the ARPU, the sub count, and the SAC numbers? Thank you.

On the first question, if we had 7 million subscribers today, then at the low-end of the range from now until the end of the year, you are talking about 700,000 net adds, going up to 1.2 million or 1.3 million at the high-end. Clearly we have a lot of those subscribers at any point in that range that come in the fourth quarter. If you just look at the range, I think you just see from where we were last year how we basically have a flatter fourth quarter, and then get to the higher end of the range, and then at the low-end of the range, it obviously is an indication of the potential negative things that could happen that have us having a lower number. That is that answer. On the Hyundai… Joseph J. Euteneuer: On the Hyundai one, frankly, all of the newer automotive deals coming out, we are not receiving an up-front payment from the auto manufacturers for the promotional period. We are in fact ourselves funding the promotional period, and therefore we will not show that as a promotional subscriber. The first time you will see that subscriber is when they become a self-paying subscriber and we turn them on. That will build in somewhat of a three- or four-month delay from actually showing them as the subscriber, and I think that is actually -- we are already very conservative in our accounting for how we do that, and that is an important -- this even makes us more conservative from that standpoint. Frankly, one of the things that I would mentioned that is often really important to look at, relative to promotional subscribers, promotional subscribers now only account for 8% or 9% of our total subscriber universe, whereas I am presuming the Sirius promotional subscribers are north of 20% or so, so there is a dramatically different amount of our subscriber base that are actually true, self-paying subscribers and not in a free trial period, and it is important for us to keep number down. Barton Crockett - JPMorgan Chase & Co.: If I could just follow-up on that, to understand what you said, the accounting that you described, that is what is going to be in place for Toyota and for Nissan, as well as Hyundai? Joseph J. Euteneuer: That is correct. Barton Crockett - JPMorgan Chase & Co.: Okay. In terms of -- I had asked for your view of the share in the fourth quarter. Do you think by the fourth quarter, you will be at parity or do you even have a view there? Joseph J. Euteneuer: I do not see a parity. Barton Crockett - JPMorgan Chase & Co.: You do not see a parity? Do you see it below parity? Joseph J. Euteneuer: No, I said our goal is to be at parity. Barton Crockett - JPMorgan Chase & Co.: Our goal is to be at parity, okay, great. I will leave it there for now. Thank you very much.

Your final question is from Eileen Furukawa with Citigroup Eileen Furukawa - Citigroup: Thank you. I have a couple quick questions. Just a clarification on guidance. At the low-end of the range, and when you do the math, it seems that if you assume that your OEM net adds stay historically where they are at, at 450 for the back-half of the year, that implies that you could see as little as 350 net adds in retail, or a third of what you saw last year. Is that an appropriate way to think about it? Is the low-end of your guidance mostly focused on weakness in retail as opposed to weakness in both retail and OEM? Then, a CPGA question. You talked about your SAC being up $4 related to FCC issues. How much more of an increase do you think you might incur? Are you still expecting to be below $100 in CPGA for ’06? Then, finally, just an update on the RIAA, the royalty agreement part of that. Do you expect you are going to go to arbitration, and when do you think you might be able to reach an agreement with them as far as general royalties?

First of all, I think you OEM number is probably a little low, but we do not really break that out for you. I think your premise that the weakness that you would see at the low-end would basically be driven by issues in the retail sector. Does that answer your question? Eileen Furukawa - Citigroup: So that is correct?

Yes, I think that your -- yes, that is correct. I just think your OEM number is probably low, but your premise that the issues that we would face would be at the retail sector is correct. I think that on SAC and CPGA, I think our goal is to be in the 100, 110 range, I guess, on CPGA, and the fact is that clearly that number will vary depending on how much money we spend and how many subs we get, and that is something that we are going to basically articulate a little bit more as we work out our plans. Joseph J. Euteneuer: A related part of what you asked was that you noted that there was this $4 extraordinary SAC charge that was related to the modification of our existing units, and your question was whether there were additional charges like that going forward, and a lot of that will depend upon exactly what the final modifications have to be. There could be additional charges on that front also.

Right, it depends on the feature resolution, that the charges in the quarter related to the existing inventory we had and the correction in the existing inventory. Just remember, in regard to CPGA going forward and the range, the issue that you have to face is not that you have dramatic dollars going up, but your denominator, which could adjust the calculation.

The final question on RIAA, the one thing I would note there, because that is a long question and I think we are at the end of our question period, but we continue to have discussions with RIAA, looking towards an arbitration that could potentially go forward on that. The one item that I would note on here, a positive movement there is we did just complete a five-year renewal with ASCAP, the American Society of Composers and others, on similarly established terms to what we have had in the past on that, so we feel very positive about that aspect of it. But the CRB or [court] arbitration situation is not yet entered into, but likely for the latter part of the year. Eileen Furukawa - Citigroup: Thank you.

Thank you everybody for joining the call.

This concludes today’s conference call. You may now disconnect.