FCC under fire from black lawmakers for XM, Sirius merger approval

By Jeffrey H. Birnbaum
Washington Post
(June 17, 2008)
Senior members of the Congressional Black Caucus yesterday criticized a compromise plan for the proposed merger of the XM and Sirius satellite radio companies, saying the deal does not provide enough opportunities for minority-owned programming.

Federal Communications Commission Chairman Kevin J. Martin said over the weekend that he would support the merger after XM Satellite Radio Holdings and Sirius Satellite Radio voluntarily agreed, among a series of other concessions, to lease 4 percent of their radio spectrums, or 12 channels, for programming run by minorities and women.

Members of the black caucus on Capitol Hill have been arguing for the merged company to lease five times that amount of spectrum to companies owned by racial minorities. Short of that, caucus members have warned in letters to the commission and meetings with Martin, they would oppose the merger.

In an interview yesterday, Rep. G.K. Butterfield (D-N.C.), chairman of the Congressional Black Caucus's working group on satellite radio, called Martin's proposed compromise "completely unacceptable."

He said he and other members of the working group planned to express their dissatisfaction today to top executives of XM, which is in the District, and Sirius.

Other prominent members of the caucus also expressed misgivings about the XM-Sirius plan. Rep. Elijah E. Cummings (D-Md.), a former chairman of the caucus, said yesterday that he was "extremely upset" about the proposed deal and that he would speak to his colleagues about taking action to stop the merger -- perhaps legislative action -- unless the percentage is increased.

"It's shocking to the conscience in this day and age, where the minority populations comprise a significant part of the satellite radio audience, that Mr. Martin would settle for what I deem to be crumbs that have fallen off the table," Cummings said. "We can do much better. I am hoping that this can be revisited."

Spokesmen for XM, Sirius and Martin declined to comment.

Butterfield said he got the idea for the 20 percent set-aside for minority-owned companies from Georgetown Partners, a minority-run private-equity firm based in Bethesda, and its managing director, Chester Davenport.

The firm, which has invested in wireless and media companies, objected last year to the merger, arguing that a monopoly could limit opportunities for minority programming.

But Davenport said that if regulators give the marriage a green light, the combined company should be required to turn over some channels to a minority-controlled entity. He said he hoped Georgetown Partners would fill that role, making it a competitor to the merged company.

Butterfield said he was not pressing for the 20 percent leasing arrangement on behalf of Georgetown Partners or anyone else. He suggested that the spectrum could be leased to a single company or to several.

Davenport declined to comment yesterday about Martin's compromise.

The satellite radio networks were told a month ago that a sizable leasing agreement would be needed to get the backing of members of the caucus, congressional insiders said. During a meeting in the Rayburn House Office Building, Mel Karmazin, the chief executive of Sirius, was asked sharp questions by aides to black caucus members, according to staffers in attendance.

Karmazin repeated, however, that too large a set-aside would be too costly for the company and would endanger the transaction and the viability of the merged company. His refusal to get closer to the black caucus's demand has stirred anger among lawmakers ever since, said the staffers, who spoke on condition of anonymity.

Butterfield said that black caucus members planned to meet today with Karmazin and Nate Davis, chief executive of XM. "We're going to close the door and have a very honest and open dialogue about the merger," Butterfield said. "If they cannot meet us on any reasonable terms, we are going to be very adamant about not approving the merger. It's not in the public interest. They are not concerned about the cost to the consumer."

FCC Commissioner Michael J. Copps remained skeptical but noncommittal about the proposed compromise yesterday. "As I've said from the beginning, this merger is a steep climb for me. That hasn't changed," he said in a statement. "I have not pushed for any conditions that would support a finding that the transaction is in the public interest. I look forward to reviewing the Chairman's proposal and will consider it with an open mind."

Public Knowledge, a consumer advocacy group, generally supported the conditions set out by Martin. "We support what we have heard today about the Commission's proposals, although we would like to know more about how the set-aside for noncommercial channels would be implemented," Gigi Sohn, the group's president, said in a statement.

But the National Association of Broadcasters blasted reports about a deal. "Given their systematic breaking of virtually every rule set forth by the FCC in their 11 years of existence, it would be curious if the Commission now rewards XM and Sirius with a monopoly," Dennis Wharton, the broadcasters' spokesman, said in a statement.

If the merger is approved, it would be a major reversal of FCC rules. The agency distributed licenses to XM and Sirius in 1997 on the condition the two companies never combine.

But both companies have struggled financially, with heavy operating costs for contracts with celebrity hosts including Howard Stern and Martha Stewart. Sixteen months ago, XM and Sirius announced that they would merge, saying it was their best chance at surviving an increasingly competitive marketplace with Internet radio, MP3 music players and terrestrial radio. If they merged, the companies would have 17 million subscribers.

After a lengthy review, the Justice Department approved the merger in March, saying a monopoly satellite radio provider would not harm consumers because there are alternatives for consumers.

It remained unclear yesterday how the commissioners other than Martin would vote.


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