FCC Hurdles Loom for XM, Sirius Merger

The Associated Press
Tuesday, February 20, 2007; 7:56 PM

WASHINGTON -- When the Federal Communications Commission auctioned off two exclusive licenses to create the satellite radio industry 10 years ago, it did not mince words on whether the competing providers could merge.

The agency said that one licensee will "not be permitted to acquire control" of the other. The clause was inserted to ensure "sufficient continuing competition" in the new business, it said.

But when dealing with the FCC, one should never say never.

"The FCC can undo anything it does," said Andrew Schwartzman, president and CEO of the Media Access Project, a public interest law firm in Washington. "However, when you change course, you need a good reason to do it."

On Monday, Washington D.C.-based XM Satellite Radio Holdings Inc. and New York City-based Sirius Satellite Radio Inc. announced a deal valued at $4.84 billion at the close of trading on Wall Street Tuesday.

The companies will have to gain approval from the Justice Department as well as the FCC. Justice typically goes first in satellite mergers. If it blocks the deal, it's game over. But Schwartzman said that is unlikely to happen.

"My guess is this Justice Department will be willing to accept any plausible argument that is presented to it," he said. "The FCC is a much tougher case."

The Justice Department looks at how mergers affect competition. The companies will argue that since the industry was created in 1997, times have changed, and so has the market. It's no longer radio, it's "audio entertainment," which includes terrestrial radio, digital "high-definition" radio that offers better sound and more stations, Internet stations and even Apple iPods.

The FCC's review is different. The airwaves are owned by the public. Therefore the law requires that any transfers of control of licenses be done only if it serves the "public interest, convenience and necessity."

The exact meaning of those words has been debated since they first appeared in the Radio Act of 1927 and later in the Communications Act of 1934.

The companies' argument to the FCC, previewed Monday, will be that a combined satellite provider will offer a wider range of programming choices for listeners.

As for the ban on combining two licensees, if the companies can convince the Justice Department that there is competition from the nonsatellite radio market, it will help their case with the FCC.

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