Source: Reuters

XM Satellite Radio Holdings and Sirius Radio have reached a tentative agreement with the Federal Communications Commission that appears to set the table for final approval. The deal follows a regulatory review of nearly a year and a half.

The companies today detailed the conditions of the Consent Decree, which would settle the FCC's investigation of the two companies' devices violating the Commission's rules.

Under the agreement, XM (NASDAQ: XMSR) will pay a fine of $17 million, and Sirius (NASDAQ: SIRI) will pay $2 million. Both companies will either shut down the offending devices or bring them into compliance within 60 days of the approval of signing the Consent Decree, which could come as early as today.

Sirius faces a lower fine because it shut down the noncompliant terrestrial repeaters in October 2006, while XM kept them in service.

Republican Commissioner Deborah Tate will cast the deciding vote. Her expected approval would break a partisan deadlock to clear the $5 billion merger that would create a single satellite radio provider of roughly 17 million subscribers.

On Wednesday, Commissioner Jonathan Adelstein cast his vote against the merger under the proposed conditions, joining fellow Democratic Commissioner Michael Copps.

"I was hoping to forge a bipartisan solution that would offer consumers more diversity in programming, better price protection, greater choices among innovative devices and real competition with digital radio," Adelstein said in a statement. "Instead, it appears they're going to get a monopoly with window dressing."

Chairman Kevin Martin Commissioner Robert McDowell, both Republicans, have both voted in favor of the conditional approval. The merger cleared the Department of Justice's antitrust review in March.

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The tie-up between XM and Sirius has drawn scrutiny from many lawmakers and consumer groups who warn of creating a monopoly in the satellite radio market that could drive up subscription prices and limit programming choice.

Both companies have spent lavishly to draw in top-shelf programming, signing deals with celebrities such as Oprah Winfrey, Bob Dylan and, famously, Howard Stern, who landed a $500 million deal with Sirius in 2004.

The merger has also been the target of a prolific lobbying attack by the National Association of Broadcasters, the industry association representing terrestrial radio and television companies.

After nearly 18 months of vociferous criticism to the merger and accusations that the two companies had repeatedly violated FCC rules, NAB Executive Vice President Dennis Wharton vented his frustration yesterday on reports of the pending approval.

"This sweetheart deal for Wall Street speculators is premised on a promise that a monopoly will provide consumers with lower prices, better service and more programming formats," Wharton said in a statement. "Only members of the Flat Earth Society would buy into such specious nonsense."

Despite lingering technical questions over the companies' efforts to create interoperable devices and assure that their radios do not interfere with FM broadcasts, the approval along party lines has seemed the likely outcome for some time, according to Blair Levin, an analyst at Stifel Nicolaus and a former FCC chief of staff.

"As expected, the Federal Communications Commission vote on the XM-Sirius deal is going to be a 3-2 vote, with Republican Commissioner Deborah Tate casting the decisive vote, most probably, in our view, in favor of the transaction," Levin wrote in a research note.

While the companies appear to have reached a conceptual agreement with a majority of the commissioners, Levin said that the technical issues could postpone a final approval, though he expects "resolution in the near future."