House Hearing Set on Satellite Radio Merger; Senate Still Considering

The committee will examine whether satellite radio competes against terrestrial radio, the Internet or other emerging technologies, said Ranking Member Smith (R-Tex.) Separately, the Senate Judiciary Committee is weighing a hearing, Hill sources said.

The merger should be aired before the committee to weigh competitive concerns, Rep. Goodlatte (R-Va.) urged Tues. in a letter to committee leaders. The committee needs to examine whether terrestrial and Internet radio services and portable downloading services should be considered in the same “relevant market” in an antitrust analysis, the letter said: “A hearing on this matter would help members ascertain important information about the potential positive and negative commercial consequences resulting from a merger between these two companies,” it said.

Reps. Green (D-Tex.) and Pickering (R-Miss.) may weigh in on a bill (HR-984) they reintroduced from the last Congress that would prohibit satellite broadcasters from offering local programming, in the name of preserving terrestrial radio’s ability to produce local content. The bill has no co-sponsors yet, a Pickering spokesman said, but it gather 140 last year and the issues is likely to play favorably with Democrats, who support strengthening broadcast localism rules.

Lobbying against the XM-Sirius deal “is likely to be intense,” said analyst Rob Sanderson of American Technology Research, citing NAB’s declared opposition. Price drops in both stocks reflect “a lack of confidence that a deal would be approved and interpretation of the announcement as an act of desperation,” he said.

Another analyst group, Washington Analysis (WA), put the odds of govt. approval above 60%, presuming an expanded definition of the relevant market and possible “numerous” merger conditions. Chances could improve if XM and Sirius agree to return some spectrum and restrict local broadcasts, WA said. WA also said it shouldn’t take 2 years to change the rule barring a company from owning 2 satellite radio licenses. Possible conditions, it said, could include restraints on raising rates, establishing an independent marketing company to sell a competing service, and guaranteeing openness to alternative programming. Merrill Lynch, meanwhile, said the deal’s best chance is completion under the current Republican administration. It said the increasing competition in audio, including HD Radio and Internet radio, “creates the right backdrop to justify pursuing a deal at this time, but does not ensure approval can be received.”

There’s no rule on the books barring a Sirius-XM merger, XM said in a memo to employees the day the proposed $13 billion “merger of equals” was announced (CD Feb 21 p1). As with public statements by Sirius CEO Mel Karmazin and XM Chmn. Gary Parsons, the memo Mon. -- which with other internal correspondence was made public in filings at the SEC -- expressed confidence that the merger would clear regulatory hurdles. But XM raised the possibility that the deal could take a year to complete. Karmazin and Parsons have predicted publicly it will close this year.

Satellite radio “is subject to the same rules governing transfers of control as other FCC licensees,” XM told its employees. When the FCC licensed satellite radio service in 1997, it wasn’t “asked to rule on whether a satellite radio merger would serve the public interest,” XM said. The Commission’s 1997 order said it wanted 2 satellite radio providers “because it thought the companies would compete primarily with each other,” XM said: “Thus, the FCC did offer its view, based on competitive conditions at the time, that combining the 2 existing satellite licenses would not serve the public interest. Since that time, the options for audio entertainment have expanded greatly and the FCC’s policy statement simply no longer reflects the reality of today’s audio marketplace.”

XM sought to bolster its case by citing a recent N.Y. Times quotation attributed to Reed Hundt, who was FCC chmn. at the time of the order: “I think we did the right thing to begin with. You wouldn’t want to change it if it weren’t for the fact that it is so obvious that you can get content in so many different ways. That wasn’t really true then.” Hundt was unavailable to elaborate right away.

Licensing at least 2 satellite radio providers “will help ensure that subscription rates are competitive as well as provide for a diversity of programming voices,” the FCC’s 1997 order said. The licensees “will compete against each other” and will face “additional competitive pressure” from other forms of audio entertainment delivery, the Commission said then. Although, as XM said in its memo, the FCC placed no known restrictions on satellite radio mergers, it did bar anyone from acquiring both licenses in the auction.

XM told employees that “the new company will have a significant presence in both Washington and New York City,” though its name and hq haven’t been set, according to the SEC filings. It’s inevitable, as in all mergers, that jobs in both companies “are likely to be eliminated based on integration analysis,” XM said: “While it is too early in the process to speculate regarding any individual positions, we are taking steps to ensure that any employee whose position is eliminated as a result of the merger will receive appropriate separation benefits.” Sirius-XM integration wouldn’t start before the deal closed, the memo said: “In the meantime, everyone should focus on their job duties and our commitments to our subscribers, shareholders and partners.”

Hugh Panero will stay on as XM CEO until the merger is done, and he will work full time with Parsons “helping to shepherd the deal through the regulatory process,” the filings said. What Parsons and Karmazin didn’t tell analysts in their Tues. conference call is that Panero will relinquish day-to-day running of XM to Pres. Nate Davis, according to the filings. XM’s ad sales and programming departments, which currently report to Panero, will now report to Davis, they said.

Little is known about the fates of other highly visible executives at the companies, including XM’s Davis. At Sirius, unmentioned has been the future of Scott Greenstein, the programming executive who engineered the Howard Stern deal. There’s also Jim Meyers, recruited by fellow RCA veteran and former Sirius CEO Joe Clayton to run operations and sales. The combined Sirius-XM will “benefit from a highly experienced management team taken from both companies, with extensive industry knowledge in radio, media, consumer electronics, OEM, engineering and technologies,” Parsons told analysts Tues.