Does anyone here really believe that President Obama wants to kill satellite radio? Talk about an Oprah divided!

My friend Tim Beyers kicked things off with an incendiary headline yesterday, but his point is simply that wider coverage of free -- or nearly free -- online connectivity will challenge Sirius XM Radio (NASDAQ:SIRI).

Still, I'm confident that broader broadband won't kill satellite radio. It'll just make the moat shallower.

The connectivity killer
I see where Tim's coming from. Back in October, when the FCC was talking about canvassing the country with free Wi-Fi, I also doubted Sirius XM's chances.

"Sirius XM Radio could face an uphill battle against free, universally accessible Internet radio," I wrote at the time. "Local network affiliates, and even the cable giants, will suffer if couch potatoes begin to stream on their own terms. In short, if you provide a premium service that has a reasonable Web-delivered alternative, free Wi-Fi is not your friend."

We're already seeing residential Wi-Fi eat into home-based subscription services such as Vonage (NYSE:VG) and DISH Network (NASDAQ:DISH), and that's while we still pay a premium for connectivity.

"We are starting to see the beginnings of core cutting where people -- typically young people -- are saying, 'All I need is broadband,'" Time Warner Cable (NYSE:TWC) CEO Glenn Britt told investors during last month's fourth-quarter conference call.

If these services are already struggling, widespread free Web access won't make their lives any easier.

The Sirius XM advantages
At this point, I have to diverge from Tim's thinking. For starters, coast-to-coast broadband may never be realistic. Even blanket satellite coverage needs a fleet of repeaters on the ground to increase reception in hard-to-reach areas.

However, let's assume that we're in some utopian ideal where a trucker can drive from Seattle to Key West with complete connectivity. Will that hurt Sirius XM? The easy response is, "Of course!" As soon as the technology is there, the gadgets will arrive en masse to make it seamless.

Now, let's get into the many reasons not to dismiss satellite radio, even in that kind of level playing field.

  • Internet radio was chugging along nicely until 2007, when record companies succeeded in raising the royalties for online streaming. Commercial-free music on Internet radio will be hard to come by in the future. Sure, ad breaks will be shorter and the playlists more diverse than terrestrial radio, but let's not assume that the listener experience will come even close.
  • If we were coated in free connectivity, many consumers wouldn't be paying for monthly broadband access. They also probably wouldn't be paying for cable or satellite television subscriptions, and they might even skimp on landline and wireless handsets. Where will all of that disposable income go? To a handful of subscriber services, such as Netflix (NASDAQ:NFLX), and to a slower extent, Sirius XM, that are still growing. Won't they be easier sells in the future? If someone is saving tens -- and possibly hundreds -- of dollars by eliminating redundant subscriptions, paying an extra $13 a month for dependably good radio won't break the bank.
  • Carmakers may be slow to install state-of-the-art connectivity devices because there is little financial incentive in doing so. Internet radio won't send General Motors (NYSE:GM) or Ford (NYSE:F) a check for usage the way that Sirius XM does. Auto manufacturers will update their vehicles eventually, when sales are at stake, but they will always promote satellite radio, because they have a financial incentive to do so.
  • Do you really think that Howard Stern, Opie & Anthony, or any of the pro sporting leagues that collect juicy checks from Sirius XM will give it all up for Internet radio? There will always be a market for premium radio content, and Sirius XM will go in with tens of millions of subscribers. That is huge, because terrestrial radio will pretty much be toast when Internet radio levels the playing field. We're talking about network-effect poetry in motion.       

So bring on the future. Sirius XM is built to eat playing fields for breakfast.

Some other Sirius stories:

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Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story, save for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.