XM, Sirius Deal Nears Finality As Companies Agree to Fines

By Kim Hart and Cecilia Kang
Washington Post Staff Writers
Friday, July 25, 2008

XM Satellite Radio and Sirius Satellite Radio yesterday agreed to pay nearly $20 million in fines for past technical violations, paving the way for federal approval of a merger between the nation's only satellite radio providers.

Federal Communications Commission officials said the companies' willingness to pay the fines signaled that a deal to combine was near.

The enforcement of fines has been a sticking point for Republican Commissioner Deborah Taylor Tate, the only one on the five-member commission who has not yet announced her position on the merger. Her vote to approve it, sealing the $13 million deal, is likely to come as soon as today, said sources familiar with the negotiations.

FCC Chairman Kevin J. Martin said XM was fined $17.5 million and Sirius $2.2 million to resolve complaints that some of the companies' radio receivers sold to consumers and signal-boosting radio towers violated FCC technical rules. Both companies said they would bring their equipment into compliance.

FCC spokesman Robert Kenny said Tate had pushed for the companies to be fined $8 million. After his own review of the violations, Martin increased the amount, Kenny said.

"My concern was that there was not significant enough of a fine," Martin said in an interview. "This is significant in moving forward with the merger."

Last-minute negotiations are taking place, and commissioners are reviewing the details of the enforcement order against the companies, said the sources, who spoke on condition on anonymity because the deal is pending.

Martin said Tate submitted edits to her proposal and "everyone seems to be in agreement on the proposal."

Tate's office did not respond to requests for comment.

Blair Levin, an analyst with Stifel Nicolaus in Washington, said the fact that the negotiations were focused on the details is a good sign that the deal will go through.

"When you start doing negotiations that go to a high level of detail, usually they get worked out," he said. "Transactions are not rejected because they couldn't figure out whether the ball should be on the 46-yard-line rather than the 48-yard-line."

So far, FCC votes are split along party lines with two Republicans, Martin and Robert M. McDowell, in favor and the two Democrats, Michael J. Copps and Jonathan S. Adelstein, opposed.

The merger, which has been under FCC review for 16 months and passed antitrust scrutiny by the Justice Department in March, has been criticized by dozens of lawmakers, states' attorneys general and consumer groups as being harmful to consumers. Critics contend a single satellite radio provider could lead to higher prices and fewer options for programming and receivers.

Sirius confirmed it was working with the FCC to resolve the outstanding enforcement of its technical violations. It said XM would shut down 100 repeaters, or radio towers used to extend signals, that violated rules of interference. Sirius will shut down 11.

Martin said District-based XM was fined much more than Sirius because many more of its towers were too tall, too powerful or had other violations.

In addition, Martin said XM was supposed to turn those technologies off while waiting for the FCC to decide whether to authorize them. Sirius shut down its towers while waiting for the agency's approval, but XM did not.

The companies had already agreed to cap prices for three years after the merger, offer a la carte programming, and increase educational and minority programming.

They also agreed to provide a greater variety of channel packages to give subscribers more choice over programming. And they said they would introduce radios that receive channels from both XM and Sirius. Currently, subscribers need separate receivers to get both firms' programming.

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