Lobbying Heats Up Over XM-Sirius

Prospects for a June decision on the merger of leading satellite radio providers XM (NASDAQ: XMSR) and Sirius (NASDAQ: SIRI) are dwindling. The lobbying efforts on both sides of the marriage are at play.

“While we believe the intensified effort has resulted in progress, there is no deal yet on the apparent thorniest issue — how to condition the deal to address diversity concerns — and other issues continue to percolate,” analyst Blair Levin of research firm Stifel Nicolaus and Company wrote in a research note.

The two money-losing satellite radio companies hope to consolidate into a single streamlined entity that can operate at a profit. Since February 2007 when they announced the merger deal, terrestrial broadcasters, consumer advocates and numerous lawmakers have lined up against the two companies joining forces.

The National Association of Broadcasters (NAB), which maintains the site XMSiriusMonopoly.org, has long opposed the merger on the grounds that the combined company would have no competitive restraints to prevent it from raising prices and restricting programming options.

More recently, the Consumer Coalition for Competition in Satellite Radio (C3SR) issued a filing with the FCC alleging that the two companies’ had deceived the Commission in detailing their efforts to create interoperable devices. The original licenses for the two companies mandated them to develop receivers that would work with other services.

Both companies have long been in the practice of signing exclusive deals with auto makers to make their respective devices an available as a built-in feature.

Much of the critical language in the C3SR filing is redacted, but the group charges that the failure of both XM and Sirius to bring an interoperable receiver to market has been harmful to consumers. Referring repeatedly to the companies’ “lack of candor” with the FCC, the C3SR filing argues that the “proposed merger obliterates the urgency of an interoperable receiver requirement.”

It also challenges the companies’ claims that device manufacturers are to blame for the interoperable receiver issue.

Levin said the C3SR’s charges have raised concerns among several staffers at the Commission. The companies have not yet responded, and with so much of the many details of the accusations missing from the public version of the C3SR filing, it is difficult to gauge its impact. At first glance, however, Levin predicted that “like many issues raised in this lengthy process, this one will also not prove to be material to the outcome,” but added that he was reserving judgment until more facts came to light.

XM and Sirius did not respond to requests for comment by press time. Both companies have placed their communications departments under what amounts to a gag order regarding the ongoing regulatory review.

Speaking on CNBC last week, FCC Chairman Kevin Martin said the agency “will do something on it soon.” Given that the merger has been pending for 16 months, deal watchers suggest that “soon” might be taken as a relative term.

“This was unlike any other merger that’s come in front of us. We have a rule that would prohibit it from going forward,” Martin said. When it granted the broadcast licenses to the companies in 1997, the FCC stipulated that they could not merge. “I think that they’re asking for something extraordinary and the Commission is taking a look at it. We’ll get back to them soon.”

Martin did mention that XM and Sirius had made pledges not to raise prices for a set period and to take steps to protect consumer choice. Many lawmakers have suggested that those concessions, as well as the interoperable device requirement, be formalized as conditions of the merger should the FCC votes to approve it.

The merger won the blessing of the Department of Justice on March 24, leaving FCC approval as the final regulatory hurdle.

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