Wall Street Still Betting on XM-Sirius Merger

NAB Continues to Lobby Against Deal, Backing Terrestrial Radio

New York -- The proposed merger between XM Satellite Radio and Sirius Satellite Radio should have no problem passing muster with both the Federal Communications Commission and the Department of Justice, according to top Wall Street analysts, and a ruling from the latter could come within the next month.

“Our contacts down there suggest that the merger will go through and it will happen in the next 30-45 days,” said Robert Peck, Bear Stearns managing director and senior analyst, speaking Tuesday at the ISCe Satellite Investment Symposium here.

Peck was referring directly to the DOJ’s pending decision on whether the proposed XM-Sirius merger would conflict with antitrust law. But Peck said he doesn’t expect much opposition from FCC chairman Kevin Martin, either, noting that if Martin wanted to stop the merger, he could have extended the FCC’s review process. Peck added that historically, “never has the FCC gone against the DOJ” in such merger matters.

Cowen & Co. managing director and senior research analyst Thomas Watts was also bullish on the merger’s prospects, saying that he thought it would get approved and that the two companies would soon offer interoperable radios that would be able to receive satellite signals from both companies’ satellites.

Watts also expected the combined company to offer a la carte programming packages, which could potentially reduce consumers’ subscription costs. In general, he thinks the merger would help consumers, not hurt them by eliminating choice.

Both Watts and Peck believe the XM-Sirius merger shouldn’t be compared to the rejected merger between EchoStar Communications and DirecTV, which would have taken a multichannel-TV universe of three providers (with cable) and reduced it to two. Instead, they believe regulators should consider Sirius-XM in the context of an audio universe that includes not only terrestrial- and satellite-radio providers, but also podcasts, iPods, Internet radio and the like.

“There’s only one party against this, and that’s NAB,” Watts said, noting that the National Association of Broadcasters delayed the launch of XM and Sirius by some five years by lobbying against FCC approval of their licenses in the late 1980s.

The NAB, of course, has been representing the interests of terrestrial-radio stations by lobbying against the XM-Sirius deal on the grounds that it would create a monopoly and reduce consumer choice.

Not surprisingly, Peck’s and Watts’ assertions were challenged by NAB executive vice president of media relations Dennis Wharton, who noted that the XM-Sirius merger is being opposed by major consumer and special-interest groups such as Consumers Union and the Black Leadership Forum, as well as some 80 members of Congress.

“The notion that the NAB is the only group opposed to this merger is just not true,” Wharton said.

He added that the merger would put too much control of programming in the hands of Sirius chief Mel Karmazin and dismissed the notions that the combined company would offer true a la carte programming instead of bundled packages of 20 or 30 channels.

Wharton said one of the reasons why the merger has drawn opposition from members of Congress and others was the “trust factor,” adding that XM and Sirius pledged to the FCC years ago that they would create an interoperable radio, but they haven’t delivered it.

“The companies were ordered by the FCC to deliver an interoperable radio, but they’ve never done it,” Wharton said. “Mel said he had one in his office, Where is it?”

Wharton also said the two companies have lacked candor on other issues. XM placed terrestrial repeaters in locations different from where it had it informed the FCC it would place them, he added, and “thousands” of drivers experienced Sirius signals from nearby cars bleeding into their terrestrial receivers and delivering potentially objectionable programming, such as Howard Stern’s program, due to Sirius receivers that didn’t meet FCC standards.

“Let’s not kid ourselves: There is a finite satellite-radio market,” Wharton said. “But if you’re asking the government to give you a monopoly, you have to at least play by the rules.”