Sirius-XM Merger Likely Faces Tough Questions at FCC, DoJ
DoJ and FCC approval of the Sirius-XM merger is considered likely but not a slam dunk, judging from early readings by analysts and lawyers who follow the satellite industry. DoJ is expected to give the merger the closest scrutiny. House Telecom Subcommittee Chmn. Markey (D-Mass.) said the merger deserves close review. At the FCC, the International Bureau, which rarely handles high profile orders, will take the lead under new Chief Helen Domenici.
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A crucial question, sources agreed, is whether regulators will accept Sirius-XM arguments that the “product market” they serve is bigger than just satellite radio because the companies compete with terrestrial radio, iPods and other audio technologies.
The companies need the FCC to both approve the merger and waive or change a 1997 rule requiring that the spectrum be split between 2 satellite radio operators. “That doesn’t strike me as that big of a deal,” one industry source said: “The standard for waiving it and the standard for approving the merger are pretty identical.” In Jan., Chmn. Martin cited the 1997 prohibition during a press conference, and XM and Sirius stock prices took a hit (CD Jan 19 p3). Martin later added that any FCC rule is “open to modification.”
“The hurdle here… would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses,” Martin said in a statement after the deal announcement. “The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices.” The Commission’s 2 Democrats, Comrs. Copps and Adelstein, are expected to have deep concerns, though they haven’t commented on the merger.
“There’s no question the FCC will approve this. The biggest question is what the Justice Dept. is going to do,” said a lawyer: “The application will provide the FCC with the regulatory fig leaf necessary to determine that the merger is in the public interest.” But another lawyer said: “I don’t think it’s a slam dunk. I think it’s going to be a difficult process.”
Stifel Nicolaus predicted in a research note that the merger will clear in 9-12 months. “We believe that the planned XM-Sirius merger is more likely than not to receive government approval, though we acknowledge that it’s a close call, as the two satellite radio companies will be combining into one and have to rely on untested arguments about competition and convergence in the broader digital audio marketplace,” the firm said: “We believe the DOJ will make the basic antitrust decision -- if the DOJ clears the deal, we doubt the FCC will block it, though we would expect it to attach conditions.”
But Sanford Bernstein & Co. said opposition of broadcasters will make approval difficult. It set the odds on merger approval at 50-50. “The DoJ’s role is antitrust, and will be based on relatively objective criteria,” the firm said: “The FCC’s role is unrelated to antitrust, and instead is a subjective judgment only of public interest and in Washington, subjective equals political. That plays to the strengths of the NAB, which is expected to vehemently oppose the deal.”
Medley Global Advisors said Sirius and XM face an uphill fight: “While the deal is doable and can win regulatory approval, it will be a long and costly fight with the broadcasting community, which has tremendous influence at the FCC and on Capitol Hill.”
The response on Capitol Hill was muted except for Markey’s. The chairman said the proposed deal “merits the utmost scrutiny by federal policymakers and regulators.” Markey intends to review the suggested transaction for its impact on consumers of pay radio, as well as how the consolidation would affect “broader policy goals of ensuring diversity, localism and innovation in radio service,” he said in a written statement.
Hill sources said Tues. that members need a chance to study the deal. At the end of a week-long recess for Presidents’ Day, many weren’t in town. But Sirius and XM have been no strangers to the Hill, spending time last year lobbying on spectrum, digital copyright and other telecom issues, according to documents filed with the secretary of the Senate. Wiley, Rein & Fielding represented Sirius last year, before partner Fred Fielding recently joined the Bush White House as counsel, but neither Wiley nor Fielding was listed as a representative on forms filed with the Senate.
XM and Sirius are fielding high-powered lobbyists. Several sources noted that Richard Wiley of Wiley Rein has represented Sirius from the company’s beginning. Wiley is considered very close to Martin, a former Wiley, Rein & Fielding associate.
Wiley’s firm spent $120,000 lobbying for Sirius, according to 2006 year-end lobbying disclosure forms. Reallocation of 2 GHz of mobile satellite service (MSS) spectrum was one issue discussed with congressional lawmakers, FCC and federal officials, the form said. Sirius’s lobbying tab for year-end 2006 totaled $210,000, according to Senate disclosure forms. That compares to the $350,000 that XM reported, the forms showed, divided among these firms in declining order of spending: Constantine Cannon, Palmetto Group, Mehlman Capitol Strategies, Monument Policy Group, Patton Boggs, Kevin McGuinness and McBee Strategic Consulting.
Panelists who had worked on the failed merger of DirecTV and EchoStar said at Satellite 2007 they were skeptical the FCC would approve an XM-Sirius merger. Lawyer Peter Nesgos said the XM-Sirius merger faces “tough challenges and many regulatory questions.”