FCC now final hurdle for satellite radio merger


Sirius Satellite Radio's $5 billion buyout of rival XM Satellite Radio received the Justice Department's green light Monday as government lawyers found that the combined company competes against a broad universe of electronic entertainment.

In what is sure to be a controversial decision, the department ruled that the companies didn't just compete against each other but with everything from land-based radio to the Internet to MP3 players. No conditions were attached to the approval.

"The likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term," the Justice Department said. "Accordingly, the division has closed its investigation of the proposed merger."

Justice Department officials brushed aside arguments by consumer groups and traditional radio broadcasters, who mounted an intense campaign to block the deal. The merger also must be approved by the FCC. Usually, approval by the Justice Department is seconded by the FCC, but this case might be different as the commission will find itself under pressure to enact more severe conditions.

"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade," National Association of Broadcasters spokesman Dennis Wharton said. "To hinge approval of this monopoly on XM and Sirius' refusal to deliver on a promise of interoperable radios is nothing short of breathtaking."

The NAB has accused the companies of operating illegal repeaters in urban areas and attempting to enter local programming markets contrary to their license terms and other breaches of the rules for years.

Among the reasons the department decided to allow the merger is that the two companies use two different technological means to deliver programming. That means XM customers have different receivers from Sirius and don't switch between the two, the department said.

"People just don't do that," Assistant Attorney General Thomas Barnett said in a conference call with reporters.

That practice, however, runs contrary to promises the companies have made to the FCC and Congress. Sirius chief Mel Karmazin has pledged that programming from both services would be available to all subscribers.

Already, lawmakers are calling on the commission to take aggressive action.

"If the Federal Communications Commission, after completing its analysis and consideration of the proposed merger, decides to approve it, I urge the FCC to appropriately condition any such approval to ensure consumer welfare with respect to long-term service plans and pricing as well as equipment compatibility and pricing," said Rep. Ed Markey, D-Mass., chairman of the House subcommittee overseeing the commission and the telecommunications industries.

The FCC had no comment on the decision Monday. FCC chairman Kevin Martin has said any approval faced a "high hurdle."

Last week, Martin told reporters that agency staff was "drafting various options" in preparation for a final recommendation.

Unlike the Justice Department, the five-member commission will decide whether the deal is in the public's interest. It could vote against the deal, approve it or approve it with conditions. The agency could require the companies to freeze prices or make part of their satellite spectrum available for public-interest obligations.

XM and Sirius on Monday declined comment on the decision.

Some analysts said they think the merger would win in the FCC.

"We believe the companies will likely be able to win FCC clearance, but we expect the agency will seek and obtain a number of conditions on the merger in a process that could still take a number of weeks," said Stifel Nicolaus managing partner Blair Levin, a former top FCC staffer.

RIAA chairman and CEO Mitch Bainwol said the approval proves how fast technology is converging and the need for copyright law to keep up.

"On the heels of this decision, the logic for a performance right for terrestrial radio has never been clearer," he said. "It's time for that to change and for Congress to provide an economic marketplace where there is parity amongst all delivery platforms."

While satellite and Internet radio pay a performance royalty to singers and musicians, terrestrial radio does not.

The companies' boards already have approved the merger.

Shares of both companies rose after the news. XM Satellite shares were up 15% in afternoon trading, and Sirius was up 8.6%.