[March 16, 2007]

Update on Proposed XM-Sirius Merger

By Mae Kowalke

TMCnet Associate Editor

Two reports Thursday presented differing views about the potential success of the proposed merger of Sirius Satellite Radio and XM Satellite Radio, which was announced Feb. 19. Because it involves satellite radio licenses—a relatively new regulatory area—the merger poses some unprecedented questions for the Federal Communications Commission (FCC (News - Alert)).

In one report, Forbes.com reporter R.M. Schneiderman painted a somewhat bleak picture for the proposed merger by noting that, at a hearing before the FCC, House Committee on Energy and Commerce members “lambasted” the regulatory agency for not enforcing certain provisions of past, high-profile mergers.

The implication, Scheiderman seemed to indicate, is that members of Congress fear the FCC may let the Sirius and XM merger go through by promising the enforcement of certain key considerations, but then not follow through. This strong-arm criticism could cause the FCC to look more closely at its practices, and perhaps even deny the merger.

The Forbes.com report quotes Oppenheimer analyst Thomas Eagan as saying that such scrutiny by the FCC may bode ill for Sirius and XM, at least if the two companies were hoping to slip through any particular regulatory loopholes.

In another report, TWICE editor Bob Gerson painted a rosier picture for the Sirius-XM merger, saying that his odds are on the merger being approved. Gerson said in the report that he spoke directly to FCC chairman Kevin Martin about the matter, and was informed that the agency will likely follow a similar script as when it analyzed (and ultimately turned down) a proposed merger of satellite TV service providers DirecTV (News - Alert) and Dish Networks.

In that case, the FCC determined that the merger would create an unfair situation for consumers, since they had only two basic choices for non-broadcast TV service—cable and satellite. With local cable franchises monopolizing most regions, the two satellite carriers (DirecTV and Dish) offered the only true competition. If they merged, would create something very close to a truly non-competitive market.

Such a situation is not the case with radio, Gerson said; competition to satellite radio includes AM, FM, cassettes, CDs, DVDs and TV audio. HD radio and digital radio are two other options poised to take off and provide further competition.

“There really is no strong anti-competitive argument to make against a satellite radio merger,” Gerson said in his report. As such, he predicted, even if the FCC takes a similar approach as in the DirecTV and Dish case, it’s unlikely that the same conclusion will be reached.

In Gerson’s view, the only truly open question regarding the XM-Sirius merger is how the two sets of subscribers would be treated. His prediction? The two brands would be continued as separate services for a time, eventually merging to have the same programming; hardware makers would phase out production of one type of radio for the other, and subscribers on the “losing” side would be offered a hardware exchange.

Regardless of how the merger analysis plays out, or what the eventual outcome is, this case is shaping up to be a contentious one that will set some important precedents. Stay tuned.

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Mae Kowalke previously wrote for Cleveland Magazine in Ohio and The Burlington Free Press in Vermont. To see more of her articles, please visit Mae Kowalke’s columnist page. Also check out her Wireless Mobility blog.

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