More Static for Sirius-XM Deal

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A challenging industry environment may not keep the FCC from placing restrictions aimed at ensuring the transaction doesn't result in higher prices or reduced competition. The Justice Dept. has already cleared the XM-Sirius combination on antitrust grounds. On May 1, John Dingell, chairman of House Committee on Energy & Commerce, and Edward Markey, chairman of the Subcommittee on Telecommunications & the Internet, jointly asked FCC Chairman Kevin Martin to require the merged company to loosen restrictions on which devices can pick up satellite radio service—a condition likely to be met with dismay at Sirius and XM. "Clearly, you don't want your competitors' signal carried over the same device," says Jessica Zufolo, senior policy director for telecommunications, media, and technology at investment firm Medley Global Advisors.

U.S. Electronics, which lost a deal to manufacture equipment for Sirius several years ago, is a proponent of the requirement, saying that without open access, Sirius-XM could increase prices by jacking up licensing fees to manufacturers. "Competition and consumers would be better served if there's an open device requirement," says Kathy Wallman, outside counsel for U.S. Electronics.

Deciding on Diversity Goals

Interest groups and some Minnesota politicians demand that Sirius-XM give up one-fifth of its programming capacity for use by public radio or minority-owned broadcasters. "Carving out 20% of satellite channels for the people is an appropriate amount," says Jeff Nelson, a spokesman for American Public Media Group, a producer of public radio programming. Entities such as Public Knowledge, a D.C.-based advocacy group, have been pushing for at least 5% of the merged company's bandwidth to be allocated to nonprofit and educational programming. The final requirement will probably fall somewhere between those two percentages, says Paul Gallant, a senior vice-president at industry consulting firm Stanford Washington Research Group.

One of the most vocal proponents of conditions is minority-owned private equity firm Georgetown Partners, which has met with the FCC 23 times since the beginning of the year. Georgetown, run by millionaire Chester Davenport, wants to lease 20% of the combined company's capacity to stream family-friendly programming. "It serves public interest because it assures diversity of programming and diversity of ownership," says Georgetown spokesman Robert Siegfried. "It solves, we believe, an issue the FCC has now with the merger" related to minority ownership and diversity of programming."

Giving up that many channels would be a high price to pay for a government go-ahead. "Some subscribers will lose the programming they most value," says Gallant. Despite some overlap in programming, XM and Sirius "would have to make some hard choices on what channels to drop."

But XM and Sirius don't have the luxury of walking away from the deal, even in the face of stiff conditions. Notes Gallant: "This merger is still a very strong improvement to the companies' business models at a time when some are questioning whether the two separate companies can survive."

With Tom Lowry
Kharif is a senior writer for BusinessWeek.com in Portland, Ore.