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XM and Sirius win merger

The FCC clears the way for one satellite radio operation. Opponents fear a monopoly.

Sirius Satellite Radio Inc. won approval from the Federal Communications Commission last night to buy XM Satellite Radio Holdings Inc., clearing the companies to combine their pay-radio services and stem losses.

FCC chairman Kevin Martin announced the 3-2 vote late yesterday in an interview. The decision removes the last regulatory obstacle to the $3.3 billion merger of the pay-radio companies after they announced the combination 17 months ago.

XM and Sirius, with 18.3 million subscribers, overcame opposition from traditional radio broadcasters and some consumer groups that said a merger would create a harmful monopoly. The companies told regulators that their union, which will bring together Howard Stern's talk show and a channel featuring Oprah Winfrey, would offer consumers more programming at a lower cost.

"Their strength is in creating a more efficient business model by not having duplicate costs and not having consumers being forced to choose one or the other," James Goss, an analyst with Barrington Research in Chicago, said in an interview before the decision.

The companies agreed to freeze prices for three years, sell smaller programming packages, and allocate 8 percent of their channels for use by educational and minority broadcasters.

All three FCC Republicans, including Martin, backed the deal. The agency's two Democrats voted against, with commissioner Jonathan Adelstein saying it creates "a monopoly with window dressing."

Sirius and XM gained the tiebreaking vote from Republican commissioner Deborah Taylor Tate after agreeing to pay $19.7 million to settle violations of FCC rules on operating radio towers.

Federal antitrust authorities at the Justice Department cleared the deal in March, saying competition from music sources including MP3 players and traditional radio would keep the combined company from raising prices. The companies submitted the deal for FCC approval in March 2007.

Martin and Tate were joined in their approval by commissioner Robert McDowell. Democrat Michael Copps voted against the deal with Adelstein.

Subscriber growth has slowed for both companies along with U.S. new-car sales, the main source of new customers. The companies say the merger will help them reduce costs and reach profitability. The all-stock deal was worth $4.57 billion when proposed in February 2007.

Sirius and XM, which began service in 2001, have spent billions of dollars attracting talent, sports programming and subscribers. Sirius features Howard Stern and NASCAR; XM has Oprah Winfrey and Major League Baseball. They reported combined losses of $1.25 billion last year on sales of $2.06 billion. Combined debt totaled $2.95 billion as of March 31.

The companies' offer to let customers select channels at variable prices may have influenced the FCC's decision. Martin advocates a la carte pricing as a way to restrain prices for cable television. Sirius and XM subscribers, charged $12.95 a month now, may pay as little as $6.99 for 50 channels of their choosing under proposed pricing.

Sirius chief executive officer Mel Karmazin will be CEO of the combined company.