FCC chief okays satellite radio merger after deal on minority programming

By John Dunbar
Associated Press
(June 16, 2008) The proposed merger of the nation's two satellite radio broadcasters, bogged down in the regulatory process for over a year, has cleared a major hurdle with Federal Communications Commission chief recommending approval of the $5 billion deal.

FCC Chairman Kevin Martin made his recommendation Sunday in exchange for a number of concessions, including turning 24 channels over to noncommercial and minority programming. That sets the stage for a final vote that could occur any time after Martin's recommendation is circulated among his fellow commissioners.

The provision on noncommercial and minority programming along with several others -- including a three-year price freeze for customers — persuaded Martin to support Sirius Satellite Radio Inc.'s buyout of rival XM Satellite Radio Holdings Inc. The deal would affect millions of subscribers who pay to hear music, news, sports and talk programming, largely free from advertising, in homes and vehicles.

The other four commissioners have, for the most part, kept their views on the deal to themselves. Unlike most FCC decisions, there is no clear indication on how the vote will go.

The proposed merger has been in a holding pattern during an FCC approval process that has gone on for more than a year.

Martin said the conditions will make the combination of the two companies good for consumers.

"As I've indicated before, this is an unusual situation," Martin said in a statement. "I am recommending that with the voluntary commitments they (the companies) have offered, on balance, this transaction would be in the public interest."

The companies also agreed to an "open radio" standard, meant to create competition among manufacturers of satellite radios, according to FCC officials who spoke on condition of anonymity because the agreement had not yet been made public.

Other conditions are similar to promises made by Sirius CEO Mel Karmazin last year.

They include a three-year freeze on prices and packages that include programs from both services, including a so-called "a la carte" offering that would be available within three months of the close of the deal.

The FCC's analysis has gone on twice as long as the agency prefers in merger reviews, largely because the XM-Sirius deal faces a special hurdle.

To ensure competition, the FCC prohibited the merger of the only two license holders when it created the industry in 1997.

Martin is recommending approval despite intense opposition from the land-based radio industry and most consumer groups, who say the deal will create a monopoly.

The buyout was approved by the Justice Department in March.

The satellite radio deal has drawn an unusual amount of scrutiny from Capitol Hill, where the National Association of Broadcasters has fought an expensive advertising and lobbying campaign to block approval.

The buyout received shareholder approval in November. The companies said the merger will save hundreds of millions of dollars in operating costs, savings that will ultimately benefit their customers.

Karmazin has pledged that the combined company will offer pricing plans ranging from $6.99 per month for 50 channels offered by one service, up to $16.99 a month, where subscribers would keep their existing service plus choose channels offered by the other service.

Karmazin also said he will allow customers to choose and pay for only the channels they want. The "a la carte" option will require new radios, the companies have said.

In addition, the companies have pledged to offer radios that are capable of receiving both services within one year.

An "interoperable radio" requirement was part of the two providers' license agreement 11 years ago, but the companies have never brought one to market, a point regularly brought up by merger opponents.

The thorniest part of the negotiations was over how much radio spectrum the companies would turn over to noncommercial and minority broadcasters.

The companies agreed to turn over 8 percent of their satellite capacity, which works out to 12 channels apiece for noncommercial programmers and for those who have "not been traditionally represented" in radio, according to Martin.

The details on how this system would work have yet to be worked out, according to FCC officials.

Both companies have lost money each year since they launched their satellites, but have not said the merger was necessary to keep them afloat.

Washington-based XM has about 9 million subscribers while New York City-based Sirius has about 8.3 million subscribers.



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