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Today's Headlines •  Satellite Radio Riddle •  Next Up: FCC •  Merger Conditions •  Congress, Others Weigh In - Advertisement - - Advertisement -		Issue Of The Week: April 14, 2008 Sirius-XM: FCC Mulls The Conditions by David Hatch      When Sirius Satellite Radio Chief Executive Officer Mel Karmazin testified last year at congressional hearings on plans to combine his company with rival XM, he made several promises to win over regulators, including assurances that the millions of receivers in homes and cars wouldn't become obsolete and that low-cost pricing would be available.      Karmazin's message apparently resonated with the Justice Department, which approved the $5 billion transaction on March 24 with no conditions. "The evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition," the Justice Department said, noting that the introduction of new technologies -- including mobile devices that stream Internet radio broadcasts -- would offer consumers even more choices.      Now, as the merger's fate rests with the Republican-controlled FCC, industry analysts say the government's review has shifted from whether the combination should win approval to how it should be conditioned.      "I think the odds of the FCC blocking the deal are pretty low," said Blair Levin, managing director at the investment firm Stifel Nicolaus, which recently noted in an advisory that the agency has never barred a merger that the Justice Department approved. "What's at stake here is the nature of the conditions, not the 'yes' or 'no' to the deal," Levin said. Satellite Radio Riddle      The planned merger has been a mix of contradictions from the start. While it would effectively create a monopoly, it could mean increased competition with terrestrial radio -- which has been criticized in recent years for automated stations, cookie-cutter playlists and diminished local news coverage.      A Republican stalwart, Sen. Sam Brownback of Kansas, has aligned himself with several watchdogs in opposition -- while Rep. Rick Boucher of Virginia, a senior member of the Energy and Commerce Committee, is among the supportive Democrats.      The National Association of Broadcasters quickly found itself in the awkward position of opposing consolidation involving competitors while backing such consolidation for its members - an apparent inconsistency that some lawmakers have been eager to highlight.      FCC Chairman Kevin Martin, who initially seemed skeptical, appears enticed by the willingness of the merger partners to accept per channel, or a la carte, pricing -- a model he has long championed for cable programming.      After jumping to Sirius in 2006 following hefty FCC fines for using foul language on broadcast radio, shock jock Howard Stern would, ironically, gain a bigger platform at the hands of an agency that nearly torpedoed his career. But the FCC could have the last laugh if subscribers are able to easily drop his show.      Approval would mark a major milestone for satellite radio, which has steadily grown since its inception in the early 1990s and now commands 14 million subscribers. It also would make life easier for sports fans forced to choose between Major League Baseball coverage exclusive to Sirius and XM's package of NFL games. Next Up: FCC      The FCC's decision could be a return to the rancor and divisiveness that has rocked the agency on other high-profile issues in recent years -- although sources cautioned that since Martin hasn't circulated his recommendations, it is unclear what will transpire.      Testifying last week on the agency's budget before a House subcommittee, Martin fielded several questions about possible conditions and appeared receptive to an a la carte approach because it would moderate prices and address concerns about indecent material. FCC watchers predict Martin will have at least two other votes for approval, most likely from his GOP colleagues on the commission, Robert McDowell and Deborah Taylor Tate.      The views of the FCC's two Democrats are tougher to gauge. Michael Copps has expressed reservations about the combination, while Jonathan Adelstein hasn't revealed where he stands. Sources said one or both Democrats might dissent or push for numerous conditions designed to protect consumers.      The timeframe for a vote is unclear, with action possible in the next month or two. Jessica Zufolo, a senior telecom analyst at the investment firm Medley Investment Group, said the merger is on a slow track for now. "It seems like the chairman is going to take some time to work through the issues that have been brought before him by the different parties," she said, noting that the Justice Department deliberated for more than a year-and-a-half.      Levin wasn't surprised that Justice did not impose restrictions. Beyond blocking the deal, the department could have required divestiture -- but that wasn't an option because it would not have created a viable competitor, he said. "They would be light years behind, millions of subscribers behind," and no auto manufacturer would sign them on, Levin observed. Merger Conditions      Opposition has been strongest from the National Association of Broadcasters, which continues to insist the merger should be blocked. "The notion that Mel Karmazin is going to get a monopoly and lower prices - does anybody really believe it?" NAB spokesman Dennis Wharton said, while quipping, "If you do, there's an Easter Bunny standing outside your door tonight."      If the FCC greenlights the transaction, the NAB would be expected to push for conditions, including a requirement that XM-Sirius receivers be able to tune in fledgling high-definition radio stations and that the new entity be banned from offering local content that competes with terrestrial radio programming.      Beyond those ideas and a la carte, parties also have suggested: Allocating channel capacity to a non-profit, such as a minority-owned entity or educational programmer. Ensuring the continued use of existing XM and Sirius devices. Guaranteeing that monthly rates won't rise for a set period of time. Permitting unaffiliated manufacturers to build gadgets compatible with XM-Sirius service.      Rep. Edward Markey, D-Mass., chairman of the House Telecommunications and the Internet Subcommittee, decried the Justice Department's decision and said that if the FCC approves the deal, it should require consumer-friendly pricing, continued use of existing receivers, diverse programming and localized content. Congress, Others Weigh In      Divide and conquer appears to be the strategy that XM and Sirius have employed to prevail. While several prominent Democrats and at least a half-dozen watchdog groups have expressed opposition, the companies can point to plenty of supporters.      In a letter last week to Martin, Rep. James Sensenbrenner, R-Wis., a former chairman of the House Judiciary Committee, became the latest lawmaker to weigh in. He argued that "neither applicant has met the high burden of proof and demonstrated that the proposed merger is in the public interest." If approved, Sensenbrenner wants several limits, including a "substantial" divestiture of spectrum.      Other critics include House Judiciary Chairman John Conyers;Sens. Byron Dorgan , D-N.D., and John Kerry, D-Mass., both members of the Senate Commerce Committee; Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, D-Wis.; and the attorneys general of a dozen states.      But their opposition is countered by encouragement of the deal from Democratic Reps. Bobby Rush of Illinois and Eliot Engel and Anthony Weiner of New York; former New Jersey Democratic Sen. Bill Bradley; and the NAACP and Parents Television Council, among others.      "This is a great example of how private industry can and will respond to the demands of consumers without the need for government intervention," said two other Commerce Committee members -- GOP Sens. John Ensign of Nevada and Jim DeMint of South Carolina -- in a joint statement last fall.

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