Many analysts have issued reports and opinions on Sirius Satellite Radio, and for the most part, they cite that the quarter was as expected with a few surprises that were positive and a few that were negative. On common theme was that ARPU (average Revenue per user) was worse than expected and SAC (subscriber acquisition cost) was better than expected.

In many ways, rebates play a function in these metrics.

The costs associated with rebates get assigned to a particular metric based upon what the rebate is for. If a rebate is tied to the hardware it is assigned to SAC. If a rebate is tied to the service, it is assigned to ARPU.

By Example:

1) A satellite radio receiver priced at $100 carries a $30 rebate price break. In this situation the $30 cost is a subscriber acquisition cost.

2) A satellite receiver priced at $100 carries a $30 rebate/price break if you subscribe for 6 months. The cost of this $30 rebate can be assigned to either SAC or ARPU. The company determines where they are issuing a price break or rebating the consumer. If the company is giving a price break on the hardware, they assign it to SAC. If the company is rebating the service, they assign it to ARPU.

3) A satellite receiver is priced at $100 and the consumer gets 3 months free if they sign up for a year. This type of rebate is assigned to the service, and the company reports the rebate against ARPU.

In Sirius' case, rebates in Q4 were assigned to ARPU. This has been the practice of Sirius for quite some time. In Q4 the impact of rebates was (.59) on ARPU. This brought that metric down substantially. SAC on the other hand, which was $90 for the quarter was better than many expected.

The key take away here is that certain costs can impact various metrics depending on how they are assigned. The rebates are a cost and they impact the company. The key is knowing how these impacts are reflected in the metrics reported.

Position - Long Sirius