FCC nears XM-Sirius merger

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By Kara Rowland

The proposed merger of the country's two biggest satellite radio companies is expected to clear the Federal Communications Commission, creating a monopoly while lowering costs to consumers, after a majority on the media-regulating agency reached a consensus, a source close to the negotiations said Wednesday.

Deborah Taylor Tate, a Republican and the only member of the five-member commission who has not voted on the deal, reportedly has agreed to sign off on the merger of XM Satellite Radio Inc. and rival Sirius Satellite Radio Inc.

Approval of the XM-Sirius deal would end a 13-month regulatory battle marked by multiple congressional hearings and contentious lobbying. The estimated $5 billion transaction would create the nation's largest satellite radio service, with more than 18 million subscribers. It also would give consumers a chance to buy a la carte programming for less than the standard $12.95 monthly fee — a promise Sirius Chief Executive Officer Mel Karmazin made last summer.

Existing subscribers would not need to purchase new radios, officials have said, even if they want content from the other company. Executives haven't specified whether XM and Sirius would continue to operate as distinct brands, though proposed pricing schemes that allow subscribers to mix and match from each lineup suggest they would stay separate, at least for a while.

Ms. Tate has not publicly discussed her leanings and her office did not respond to requests for comment. She cast the deciding vote after Democrat Jonathan Adelstein voted against the combination Wednesday, bringing the tally to 2-2.

Ms. Tate wants to penalize XM and Sirius for infractions that include selling powerful satellite radio receivers that interfere with traditional broadcast signals, said the source, who did not elaborate on the proposed penalty. The Wall Street Journal on Wednesday attributed a $20 million figure to unnamed sources.

District-based XM and New York-based Sirius declined to comment.

XM and Sirius, which announced their proposed union in February 2007, last month agreed to several merger conditions, including a three-year price freeze, an 8 percent channel set-aside for minority and noncommercial programmers and an "open" radio standard that would allow any manufacturer to make a compatible radio.

The companies, neither of which has ever turned a profit, have estimated that a merger would produce $400 million in cost savings in the next year.

Mr. Adelstein, who has criticized media consolidations, earlier said he could support the deal if the companies agreed to set aside one-fourth of their channel capacity for minority and noncommercial programmers, a six-year price freeze and an interoperable radio that would include a receiver for the broadcast industry's HD Radio technology.

"I was hoping to forge a bipartisan solution that would offer consumers more diversity in programming, better price protection, greater choices among innovative devices and real competition with digital radio. Instead, it appears they're going to get a monopoly with window dressing," Mr. Adelstein said.

Joining Mr. Adelstein in opposition was the agency's other Democrat, Commissioner Michael J. Copps, who voted earlier this week. Commissioners Kevin J. Martin and Robert M. McDowell, both Republicans, voted in favor of the merger.

The Department of Justice signed off on the merger in March. At the outset of the FCC's review, Mr. Martin said the companies face a "high hurdle" in securing the agency's approval because their 1997 licensing agreements contained a rule saying that one satellite radio company could not own more than one license. But proponents of the merger argued that the media marketplace has evolved and the two satellite radio companies now compete not only with each other but with broadcast radio, HD radio, Internet radio and MP3 players.

The National Association of Broadcasters, which waged a multimillion-dollar ad campaign against XM and Sirius, declined to comment until a final vote takes place. The NAB and other groups have called the merger a "government-sanctioned monopoly."