- The Washington Times - Tuesday, March 25, 2008

Sirius Satellite Radio Inc. and XM Satellite Radio Inc. are one big step closer to merging after antitrust officials yesterday signed off on the $13 billion deal, which now rests in the hands of the Federal Communications Commission.

Concluding that the merger would not “substantially lessen competition,” the Justice Department said it is “not likely to harm consumers.” The approval comes more than a year after the two companies announced in February 2007 their plans to combine.

Over-the-air broadcasters and several consumer groups sought to block approval of the merger, which they said would create a satellite-radio industry monopoly.

But the Justice Department said the two companies compete in a broad market that includes other audio services, such as broadcast radio, HD Radio, Internet radio and portable media players. The agency said the two companies would not have a financial incentive to raise prices on consumers and cited cost savings from the merger as further evidence a combined company wouldn’t need to increase costs.

“The combination of our companies will lead to more choices and better pricing for our subscribers, and result in a stronger competitor in the rapidly evolving audio entertainment market,” District-based XM said on its Web site.

The ball is now in the court of the FCC, which must consider whether the merger is in the public interest. Chairman Kevin J. Martin, a Republican, has said the deal faces a “high” hurdle since the FCC issued an accompanying order in 1997 — when it granted XM and Sirius their licenses — that barred the same company from owning the two licenses.

While the FCC decision is separate from the antitrust proceeding, the media-regulating agency typically waits for the Justice Department to decide a case first because it pays close attention to the department’s analysis of market conditions.

The FCC, made up of three Republicans and two Democrats, could grant the merger, deny it, or approve it but require the companies to make certain concessions, as it did with the merger of AT&T; and BellSouth. Those companies agreed to adhere to so-called “net neutrality” principles for two years, among other conditions. A private equity firm called Georgetown Partners has suggested in filings with the FCC that a combined XM and Sirius be forced to lease one-fifth of their channel space to a minority-owned entity.

XM and Sirius, which each charge subscription fees of $12.95 a month, last summer announced several new a la carte pricing schemes that would be offered if regulators approved the deal. One option would allow subscribers to choose 50 channels for $6.99 a month with additional channels priced at 25 cents each. Another option of 100 channels would allow Sirius customers to choose from some of XM’s programming, and vice versa, for $14.99 a month. The announcement included several other packages, including family-friendly, mostly music or news, sports and talk shows.

The move was viewed by many as a nod to Mr. Martin, who has long been an advocate of a la carte pricing when it comes to cable-TV services.

The National Association of Broadcasters, in a strongly worded criticism of the Justice Department, yesterday seized on the two satellite-radio operators’ failure to provide “interoperable” devices capable of receiving signals from both Sirius and XM — something both companies promise to offer if the merger is approved. But as The Washington Times reported last summer, the companies have not brought such a device to market, even though the 1997 FCC order instructed them to do so.

“We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade,” NAB spokesman Dennis Wharton said. “To hinge approval of this monopoly on XM and Sirius’s refusal to deliver on a promise of interoperable radios is nothing short of breathtaking.”

XM has about 9 million subscribers and boasts personalities such as Oprah Winfrey and shock jocks Opie and Anthony, with content from Major League Baseball, IndyCar Series Racing and college football’s Bowl Championship Series. New York-based Sirius has around 8 million subscribers with a lineup that includes Howard Stern, Martha Stewart, the National Football League, NASCAR and the National Basketball Association.

Sirius Chief Executive Officer Mel Karmazin would head the combined company.

Neither XM nor Sirius has ever turned a profit, but both narrowed their losses in the most recent fourth quarter. XM reported a $239 million loss on revenues of $308 million, compared with a $257 million loss on revenues of $257 million a year ago; Sirius saw a $166.2 million loss on revenues of $249.8 million, compared with a loss of $245.6 million on revenues of $193.4 million.

The companies obtained shareholder approval for the merger in November. Shares of XM closed up 15 percent. Sirius jumped 9 percent to $3.15.

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