Sirius on the Hiking Trail

As Sirius (SIRI Quote) eyes expensive new expansion plans, some investors have started to see rate hikes as the best way to bring losses under control.

Fans of the New York pay radio shop were told in February that the tide of red ink could turn by year-end. But that goal seems even more distant now that capital spending is expected to double to $110 million this year, as the company prepares a massive upgrade of its repeater antenna network. The heavy investment is intended to open the way to new services like video and data.

All the spending talk has investors bracing for yet another heated debate over whether satellite radio is a perpetual cash furnace or if it has emerged as a popular consumer service on the verge of profit.

One possible solution being discussed by Sirius executives seems to please investors: raising subscription fees.

Industry watchers expect Sirius and rival XM (XMSR Quote) to impose another increase in monthly radio charges as the two players try to cash in on their popularity and slow their runaway losses.

Apparently, one of the options Sirius is considering is a two-tiered system where users would be charged a premium price for added features, according to a report last week from Bear Stearns analyst Bob Peck.

The higher prices would be an attempt to pass along to users some of the costs for more expensive radios that include multichannel recording features. These radios allow users to record programming or even individual songs. Analysts say Sirius is on the hook for a portion of the royalty payments attached to the additional music recorded by users.

But some observers say a two-tiered subscription plan is unnecessary and a potential nuisance. The preferred solution, say some industry fans, would be an across-the-board rate increase, which would help bring in more cash to fuel expansion efforts and bring the company closer to break-even.

Despite the big spending plans for this year, Sirius representatives say hitting the positive free cash flow target as early as the fourth quarter will not depend on raising rates.

"We have said that raising rates is a possibility," says a Sirius rep. "We don't think we have to do it."