David Faber Speaks Exclusively to Sirius Satellite Radio CEL Mel Karmazin on "Street Signs" (Transcript Included)

WHEN: Monday, October 15 at 2:30PM ET
WHERE: "Street Signs"

The following is the unofficial transcript of a CNBC interview with SIRIUS Satellite Radio CEO, Mel Karmazin, on CNBC's "Street Signs" today. All references must be sourced to CNBC.

CNBC's David Faber speaks exclusively with SIRIUS Satellite Radio CEO, Mel Karmazin, about the state of satellite radio business and the fate of the proposed potential merger with XM.

DAVID FABER: THANKS, ERIN, HERE IN SIRIUS'S MIDTOWN HEADQUARTERS WITH YOU, YOU SAID MEL KARMAZIN, IT WAS FEBRUARY 19th, WHEN SIRIUS ANNOUNCED ITS INTENT TO MERGE WITH XM, AN ACQUISITION OF XM FOR CERTAIN PURPOSES BY SIRIUS. HERE WE ARE, IN THE LATE STAGES. THE FCC, WE MAY HEAR FROM THE NEXT 6 TO 8 WEEKS AND THE DOJ, YOUR HAVING YOUR SHAREHOLDER MEETING I BELIEVE NOVEMBER 13th. GIVE ME YOUR PERCENTAGE OF CHANCES IF THIS DEAL GETS APPROVED BY THE REGULATORS.

MEL KARMAZIN: SO IT IS EIGHT MONTHS SINCE WE FILED, YOU KNOW, AND ANNOUNCED OUR MERGER. I'M STILL BELIEVING THAT IT WILL GET APPROVED AND GET APPROVED BY THE END OF THE YEAR. IT SHOULD GET APPROVED. YOU KNOW, FROM MY POINT OF VIEW, SHOULD BE 100%. BECAUSE I BELIEVE THAT IT IS NOT ANTI-COMPETITIVE.

DAVID FABER: WHAT DO YOU REALLY BELIEVE ARE THE CHANCES. I MEAN, TODAY BEAR STEARNS SAYS 70% CHANCE AND MOMENTUM CERTAINLY SEEMS TO BE BEHIND YOU BUT THAT DOESN'T REALLY MEAN MUCH OF ANYTHING, THE END OF THE DAY IS THE DOJ AND 5 FCC COMMISSIONERS.

MEL KARMAZIN: AND I KEEP LOOKING OUT THE WINDOW LOOKING FOR THE WHITE SMOKE TO APPEAR AND SO I REALLY DONT HAVE A SENSE AS TO WHERE IT IS. THE PROCESS IS ONGOING AND WE'RE WORKING WITH THE DOJ AND WE HAVE CERTIFIED THEY HAVE -- THAT WERE SUBSTANTIALLY IN COMPLIANCE AND GAVE THEM 6 MILLION PAGES OF DOCUMENTS, XM GAVE THEM 6 MILLION PAGES OF DOCUMENTS. SO, THEY ARE GOING THROUGH THOSE DOCUMENTS, AND THE FCC IS ALSO FULLY ENGAGED. I CAN'T SPEAK FOR SIX TO EIGHT WEEKS BUT THE HOPE IS THAT WE'LL HAVE AN ANSWER BY THE END OF THE YEAR AND WE'LL BE ABLE TO CLOSE.

DAVID FABER: THERE ARE SOME INVESTORS WHO, AGAIN, HAVE RAISED THEIR EXPECTATIONS IN TERMS OF THE PERCENTAGE CHANCE YOU WILL GET THROUGH THE REGULATORY REVIEW. BUT ARE CONCERNED PERHAPS YOU HAVE GIVEN UP TOO MUCH, THAT THE MOVE TO A LA CARTE PRICING WHICH MAY SATISFY CHAIRMAN MARTIN ULTIMATELY WILL HURT YOUR BUSINESS, HURT YOUR AVERAGE REVENUE PER USER AND SO HEY, THEY GOT THE DEAL DONE. TOO BAD THEY GAVE UP EVERYTHING.

MEL KARMAZIN: YEAH, I THINK THE ANALYSTS DON'T GET IT AND IT'S NOT SURPRISING SOMETIMES ANALYSTS DON'T GET IT. A LA CARTE IS A GREAT BUSINESS MODEL FOR US. WE HAVE LEFT -- LESS THAN 5% OF THE PEOPLE IN THE UNITED STATES ARE SUBSCRIBING TO SALT RADIO. THE MAIN REASON THAT THEY ARE NOT SUBSCRIBING IS A HIGHER PRICE, THEY HAVE TO PAY $12.95, BECAUSE OF THE MERGER, IF THERE ARE SO MANY EFFICIENCIES THERE, WE'LL BE ABLE TO LOWER THE PRICE. WE SHOULD BE ABLE TO GET MORE SUBSCRIBERS, OFFERING A LA CARTE, GIVING CONSUMERS A GREATER CHOICE, GIVING THEM A CHOICE NOT JUST ON THE PROGRAMMING BUT THE PRICE THEY PAY, WITH A LA CARTE WE CAN LOWER OUR PRICE 46%, YES, THE RPOU WILL BE ADVERSELY AFFECTED BUT WE'RE IN THE BUSINESS GOFTING MORE AND MORE SUBSCRIBERS AND THE BUSINESS YOU FOLLOW A LOT, CABLE AND SATELLITE ARE FULLY DISTRIBUTED. I MEAN, THEY ARE NOT ABOUT GETTING MORE SUBCRIBERS DESCRIBE -- SUBSCRIBERS, THEY ARE ABOUT GETTING MORE RPOU AND OURS IS THE A LA CARTE ALLOWS US --

DAVID FABER: SO ITS THE OLD ADAGE YOUR GOING TO MAKE IT UP IN VOLUME.

MEL KARMAZIN: TALKING ABOUT PROFITABLE VOLUME BECAUSE OF THE EFFICIENCIES CREATED BY THE MERGER. AND AS WE GET INTO THESE ADDITIONAL SUBSCRIBER NUMBERS, OUR GROSS MARGIN IS VERY ATTRACTIVE AND A GOOD CHUNK OF THAT ADDITIONAL REVENUE FALLS TO THE BOTTOM LINE.

DAVID FABER: LET'S TALK ABOUT PROFITABILITY AND GENERATION OF CASH FLOW BECAUSE THERE IS ALSO A CONCERN HERE THAT ULTIMATELY THESE COMPANIES, WHETHER TOGETHER OR APART WILL NEVER GENERATE SUFFICIENT AMOUNTS OF CASH FLOW REFLECTIVE AT LEAST OF THEIR CURRENT VALUATIONS, THE REASON IS AND THESE ARE DETRACTORS SAY PUT THEM IN CARS AND PEOPLE GET THEM WHEN THEY BUY THEIR CAR AND EVERYBODY SHUTS IT OFF AT THE END OF THE CONTRACT WHEN YOU ARE NO LONGER SUBSIDIZING IT AND THE CHURN IS WAY TOO HIGH ULTIMATELY TO MAKE IT WORTHWHILE IN TERMS OF CASH FLOW BUSINESS.

MEL KARMAZIN: DAVID, I DON'T AGREE WITH THAT. I THINK THAT OUR SELF-PAY CHURN IS 1.5% MONTH WHICH IS IF YOU LOOK AT SUBSCRIPTION SERVICE, THAT IS A VERY LOW NUMBER. THE CONVERSION RATE IS REPORTED ABOUT 50%. YOU KNOW, THAT IS A HIGH NUMBER OF PEOPLE WHO ARE BUYING A CAR, 16 MILLION PEOPLE, BUY A CAR EVERY YEAR, IF YOU TAKE THE PENETRATION AND THEN APPLY ABOUT A 50% THAT MEANS MILLIONS OF ADDITIONAL SUBSCRIBERS ARE BEING ADDED EACH YEAR BECAUSE THEY ARE BUYING A NEW CAR

DAVID FABER: WHAT IS THE LIFE OF A SUBSCRIBER WHO DOES NOT CONVERT?

MEL KARMAZIN: WE HAVEN'T BEEN AROUND LONG ENOUGH BUT IF YOU TAKE THE 1.5% CHURN RATE YOU GOT A SIX YEAR LIFE OF A SUBSCRIBER.

DAVID FABER: HOW THIS IS INDUSTRY RIGHT NOW? YOU KNOW, OBVIOUSLY ADVERTISING IS NOT YOUR KEY COMPONENT. SUBSCRIBERS BUT YOU DO DO ADVERTISING, YOU CERTAINLY KNOW THE INDUSTRY WELL AND THERE IS CONCERN ABOUT AN ECONOMIC SLOWDOWN. ARE YOU STARTING TO SEE IT ALL IN TERMS OF ADS AND AD RATES.

MEL KARMAZIN: IT IS VERY HAVE HARD FOR ME TO TALK TO YOU TODAY ABOUT OUR CURRENT BUSINESS BECAUSE WE HAVE ALREADY CLOSED OUR QUARTER AND WE HAVEN'T REPORTED IT YET. BUT WE HAVE GIVEN GUIDANCE THAT SAID WE'LL BE OVER 8 MILLION SUBSCRIBERS AT THE END OF THE YEAR WHICH MEANS THAT WE WILL HAVE ADDED TWO MILLION SUBSCRIBERS IN THIS YEAR. AND, YOU KNOW, WE ARE NOT CHANGING THAT GUIDANCE AT ALL. YOU KNOW, WE'RE VERY COMFORTABLE WITH ADDING IT. OUR ADVERTISING BUSINESS, OUR BASE IS LOW, BUT OR ADVERTISING BUSINESS IS UP, THIS YEAR, OVER LAST YEAR, IN RADIO, THAT IS A PRETTY IMPRESSIVE STATEMENT TO MAKE THAT WE WILL BE UP DOUBLE DIGITS WHEN EVERYONE ELSE IS SORT OF--

DAVID FABER: AS YOU SAY FROM A LOW BASE.

MEL KARMAZIN: LOW BASE BUT AGAIN AS WE GET MORE AND MORE SUBSCRIBERS AND THE MERGER ALLOWS TO US DO THAT WE'LL HAVE MORE EARS TO OFFER ADVERTISERS AND THEREFORE WILL HAVE A HIGHER ADVERTISING BASE AS WELL.

DAVID FABER: WHAT HAPPENS IF THIS DOESN'T GO THROUGH? DESPITE YOUR DETERMINATION THAT IT WILL HAPPEN? WHAT WILL YOU DO? STICK WITH THIS? IS THERE A BACKUP PLAN.

MEL KARMAZIN: OUR BACKUP PLAN WAS ALWAYS BUSINESS AS USUAL, IN THE FOURTH QUARTER OF 2006 WE WERE FREE CASH FLOW POSITIVE. IT WAS A REALLY GOOD SIGN THAT SHOWS THAT --

DAVID FABER: FREE CASH FLOW POSITIVE, YOU YOU HAVE BEEN PROMISING THAT FOR A LONG TIME.

MEL KARMAZIN: IN THE FOURTH QUARTER OF '06 MADE $30 MILLION IN FREE CASH FLOW AND SUSPEND GUIDANCE BECAUSE OF THE MERGER. WE'LL GO BACK TO OUR BUSINESS, WE'LL CONTINUE TO GROW OUR BUSINESS AND WE WILL BE A FREE CASH FLOW BUSINESS AND WE'LL BE STRONGER AS A RESULT OF THE MERGER AND WE'LL BE ABLE TO BE A BETTER COMPETITOR AND HAVE MORE INNOVATIVE PRODUCTS WE'LL HAVE IT AT LOWER PRICES AND BE ABLE TO COMPETE WITH TERRESTRIAL RADIO, A WHOLE LOT BETTER IF THE MERGER TAKES PLACE BUT IF IT DOESN'T, BACK TO BUSINESS.

DAVID FABER: ALL RIGHT, WE'LL SEE IF WE CAN HOLD YOU TO THAT ONE WAY OR THE OTHER.

MEL KARMAZIN: ALWAYS HAPPY TO BE HELD TO IT.

DAVID FABER: THANK YOU, MEL KARMAZIN, PRESIDENT AND CEO OF SIRIUS AND POTENTIALLY THE CEO OF A COMBINED SIRIUS/XM, ERIN BACK TO YOU.

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