Bloomberg On Martin: FCC Rule Can Be Changed

Jan. 17 (Bloomberg), By Christopher Stern

Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. wouldn't win approval of a merger under current U.S. Federal Communications Commission rules, agency Chairman Kevin Martin said today. A ban on a single owner for both satellite services was written into regulations that authorized the two nationwide licenses in 1997, Martin told reporters after an FCC meeting. "There is a prohibition on one entity owning both of these businesses,'' Martin said.

The comments suggest that the companies will have significant regulatory hurdles in any combination, after the heads of XM and Sirius said a combination makes sense. XM, the largest pay radio company, and its smaller rival Sirius have lost billions of dollars competing with each other and subscriber growth slowed last year. Martin, a Republican who heads a 3-2 majority on the commission, didn't say whether he favors a merger between the two companies or address prospects for a rule change. A merger would also require approvals from antitrust regulators.

Shares of Washington-based XM fell $1.67, or 9.7 percent, to $15.47 at 3:49 p.m. New York time in Nasdaq Stock Market composite trading. New York-based Sirius fell 25 cents, or 6 percent, to $3.90. Shares of both companies jumped earlier this month after Chief Executive Officer Mel Karmazin and XM Chairman Gary Parsons fueled speculation month about a possible combination. XM shares have fallen 41 percent in the past year through yesterday, while Sirius dropped 34 percent.

`Easygoing'

The FCC might defer to the U.S. Department of Justice, which could approve a merger if the market included audio products such as Apple Inc.'s iPods, cell phones and free broadcast radio, RBC Capital Markets analyst David Bank said in a Jan. 12 research note. "This is the most easygoing antitrust division since the Sherman Act was written,'' Reed Hundt, an antitrust attorney and former Federal Communications Commission chairman, said in an interview this month. ``In my eyes the combination of two satellite radio firms would not significantly reduce choice in the music business.''

Analysts disagree on how big an obstacle regulators present. The FCC's rule lowers the probability of approval to below 50 percent, analyst Jonathan Jacoby at Banc of America
Securities said in a research note yesterday. Bryan Kraft at Credit Suisse put chances clearance at 50 percent, according to his research note yesterday.

Rule Change

The FCC rule can be changed, Blair Levin, a Washington-based analyst with Stifel Nicolaus & Co. Market developments are making it easier to obtain approval, he said in a Dec. 1
research note. ``The analysis that this is a condition and therefore the merger is a non-starter is just wrong,'' Levin said today in an interview. The companies should attempt to combine before 2008, Bank, who is based in New York, said in his note. An FCC helmed by a Democrat or less-receptive Republican administration than President George W. Bush would offer much greater resistance, hew rote.

--With reporting by Don Jeffrey in New York. Editor: Palazzo.

To contact the reporter on this story:
Christopher Stern in Washington at +1-202-624-1966 or
cstern3@bloomberg.net.

1/17/2007 07:15:00 PM

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