Sirius loss narrows but XM deal approval unclear

NEW YORK (Reuters) - Sirius Satellite Radio Inc (SIRI.O), whose proposed purchase of rival XM Satellite Radio XMSR.O is still awaiting regulatory approval, reported a smaller quarterly loss on Tuesday as subscribers to its pay-radio service increased.

But lingering uncertainty over the merger deal, which was announced on February 20, 2007, is likely to overshadow the better-than-expected fourth-quarter results. The company's stock fell 2 percent in premarket trading.

U.S. regulators have yet to decide whether to approve the transaction. They include the Federal Communications Commission as well as the Department of Justice, which will decide if combining the two U.S. satellite radio companies would be anti-competitive, as some critics have charged.

"Unfortunately, we have not received our approval from the DOJ or the FCC," Sirius Chief Executive Mel Karmazin said on a conference call. "We are optimistic that we will hear favorable information from them in the near future."

For the fourth quarter, which includes results for the holiday season, Sirius posted a net loss of $166.2 million, or 11 cents a share, 2 cents narrower than the analysts' average forecast, according to Reuters Estimates. The year-earlier loss was $245.6 million, or 17 cents a share.

Revenue for the New York company, whose varied programming choices include "shock jock" Howard Stern and Nascar auto racing, increased 29 percent to $249.8 million.

Cowen and Co analyst Tom Watts called the results "solid" and noted that the companies free cash flow -- the amount of money left after all expenses and capital expenditures -- beat his expectations.

"With FCF now flowing, and sustainable subscriber momentum due to (subscriptions from new-car sales), we believe Sirius shares can outperform the market substantially over the next year, regardless of merger approval," he said in a client note.

Sirius added 654,309 subscribers in the quarter, ending the year with 8.32 million.

Average monthly subscriber churn -- a measure of users who quit the service -- was 2.3 percent in the fourth quarter, compared with 2.1 percent in the third quarter.

The cost of acquiring each subscriber fell 12.6 percent from a year earlier to $90, on lower hardware costs.

Karmazin said Sirius would refrain from forecasting 2008 results until regulators approve the pending deal.

The company's shares rose 2 cents to $3.06 in afternoon trading on Nasdaq.

(Reporting by Franklin Paul; editing by Mark Porter/John Wallace/Lisa Von Ahn)