http://www.businessweek.com/technology/content/jul2008/tc20080725_360276.htm?chan=rss_topEmailedStories_ssi_5
After more than 16 months in regulatory limbo, the planned merger between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) finally got the go-ahead. Late on July 25, the Federal Communications Commission voted 3-2 to approve the deal without imposing many conditions that might have reduced the appeal of the merger.
A green light from the top communications regulator was the last government approval needed before combining the satellite radio pioneers. Regulators fretted that a merger of the two principal satellite radio companies would create a monopoly that could raise prices and freeze out competitors. But digital music delivered over the Internet has revolutionized how people get and listen to songs, and helped flood the market with competition.
Pressure from rivals, along with the slump in demand for satellite radio-equipped cars, leaves XM and Sirius in a precarious position. "The biggest question mark is how this product thrives in an era of difficult financing and where people have alternative means of getting radio," says Blair Levin, former FCC chief of staff who is now managing director at Stifel Nicolaus (SF). Since the deal was announced in February 2007, Sirius shares have plunged 43%, to 2.25 on July 25, while XM stock has tumbled 40%, to 9.28.
Many of the conditions the FCC could have imposed in the name of protecting consumers and fostering rivalry were left by the wayside. "The merger is in the public interest and will provide consumers with greater flexibility and choices," FCC Chairman Kevin Martin said in a statement. The FCC will require the combined company to keep prices steady for three years—not six, as some had expected. The commissioners also asked XM-Sirius to set aside 8% of its channels for noncommercial programmers; some analysts speculated the company may be asked to set aside as many as one-quarter. But caving in to pressure from Congress, the FCC said it will require the merged company to allow any manufacturer to make a device able to catch satellite radio. The agency may also conduct an inquiry to determine whether XM-Sirius should be required to make their satellite radios capable of receiving high-definition radio signals, a competing technology. And the FCC imposed a $19.7 million fine on the companies for past rule violations and asked the two companies to make interoperable radios, which can receive both XM and Sirius streams, available within a few months. "It could have been a lot worse," says Paul Gallant, an analyst at Stanford Group.... (more)
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