XM, Sirius in Orbit Over FCC Chair's Nod

The long-awaited merger of XM Satellite Radio and Sirius Satellite Radio may be on the cusp of winning approval, with the chairman of the Federal Communications Commission now saying he is on board with letting it go forward.

FCC Chairman Kevin Martin will propose allowing the merger to proceed, but will seek two conditions on the deal in his proposal to the full commission, Commission spokesperson David H. Fiske told the E-Commerce Times, although he declined to specify details.

First, Martin reportedly will demand that the merged company agree to freeze prices for existing customers for as long as three years, something they have already said they will do voluntarily. Second, he will ask that 24 channels on the combined network be set aside and dedicated to carrying minority, noncommercial and special-interest programming.

Public Interest

"As I've indicated before, this is an unusual situation," Martin said. "I am recommending that with the voluntary commitments they have offered, on balance, this transaction would be in the public interest."

Martin did not give a timetable for floating the proposal or scheduling a vote by the five-member commission. At least two other members will have to back the proposal for it to win approval.

The news of Martin's position sparked a rally in shares of both companies. XM stock rose more than 6 percent to US$11.56, while Sirius stock gained 5 percent to $2.67. Since the companies first announced the merger nearly a year ago, the major question facing it has been whether it will win regulatory approval. The Department of Justice cleared the merger in March, and shareholders from both companies voted to support the deal last fall.

The FCC is a higher hurdle, however, in part because the commission made rules when it first licensed Sirius and XM separately, in 1997, that were meant to prevent them from combining.

Several conditions proposed by the carriers themselves will ensure the merger is a win for consumers, Martin said. For instance, smaller and less expensive packages will be offered and an open standard will be crafted to make radio receivers easier to produce, and theoretically at least, less expensive.

Congress had already helped shape the merger debate, with committees that reviewed the deal suggesting similar lists of conditions.

Heavy Lobbying on Both Sides

XM and Sirius have lobbied hard for the deal to go through, saying that the competitive landscape has changed dramatically since they were first licensed, with the boom in the market for MP3 players and Internet-based radio services serving similar markets to theirs.

Groups representing terrestrial radio, such as the National Association of Broadcasters, has lobbied for the deal to be stopped or heavily conditioned because of the competitive implications.

Other groups have pressed for conditions to make the deal more consumer-friendly. For instance, Public Knowledge has backed the spectrum set-aside approach, saying it is necessary to ensure the satellite airwaves remain open to new voices, said President Gigi B. Sohn.

"We support what we've heard about the direction the commission is moving on the deal," Sohn told the E-Commerce Times, adding that the group is interested in learning exactly how the spectrum set-aside will work and how access to the set-aside airwaves will be granted and governed. "Because it's complicated and there are many interests to consider, the details will be important."

Most of the rest of the FCC has remained tight-lipped about the deal. Last week, FCC Commissioner Jonathan Adelstein said in a TV interview with C-Span that the FCC will first have to vote to amend its own rules. Only then, he said, can the commission take up the formal merger proposal along with any conditions. He also indicated that will happen soon.

Urgent Need

In recent months, both providers have seen their growth rates slow and continued to face financial struggles as independent companies. XM now has about 9 million paying customers, while Sirius has around 8.3 million subscribers.

Both companies may continue to see slow growth rates as the economy goes through an uncertain patch, JupiterResearch analyst Barry Parr told the E-Commerce Times.

As competitors, each company had to invest millions in customer acquisition, which has helped to contribute -- along with major contracts to on-air talent -- to their financial struggles, Parr noted.

With more new cars coming with satellite receivers built in, a merged company might be able to tighten its belt considerably in terms of marketing and customer acquisition costs, which could lead to a more sound company, even with a cap on subscription fees and smaller, presumably less profitable bundles required as envisioned by the FCC.

"XM and Sirius will likely accept a lengthy list of conditions because the deal is all but essential to their survival," Parr said.