[Satellite News 07-24-08] The buzz over the merger of XM Satellite Radio and Sirius Satellite Radio continues louder than ever, as the two companies said July 24 that they are in discussions the Enforcement Bureau of the U.S. Federal Communications Commission (FCC) to settle outstanding enforcement matters.
    The settlement of these issues may be the final issue that stands between approval of the deal, as multiple reports June 23 indicated that Commissioner Deborah Taylor Tate now represents the tiebreaking vote on the five-member panel and is seeking some final concessions before voting for the deal.
    The FCC began investigations in 2006 regarding the compliance of certain radios and the compliance of certain terrestrial repeaters with FCC regulations. XM and Sirius said they hope to enter into a Consent Decree with the FCC that will end these inquiries and as part of the agreement, XM and Sirius will agree to: adopt comprehensive compliance plans and take steps to address any potentially non-compliant radios remaining in the hands of consumers; shut down 50 XM terrestrial repeaters and shut down or bring into compliance an additional 50 repeaters; bring into compliance or shut down up to 11 Sirius repeaters, which the company says were shut down in October 2006; and pay a combined $19 million to the U.S. Treasury.
    FCC voting has fallen along party lines, and Tate, who was appointed by President Bush in November 2005, has demanded that the two companies fork over $20 million in fines to settle charges that both violated agency rules, according to reports.
    In addition to concessions already made by the two satellite radio companies, including: a three-year price lock for consumers, allowing outside manufacturers make satellite-radio equipment and allotting up to 8 percent of their channels for minority-owned stations and noncommercial uses, the companies have agreed to implement content-blocking abilities for customers to block controversial content from such satellite radio personalities as shock jock Howard Stern, Sirius’ prime subscriber draw — a move that could put the company at odds with its biggest draw.
    Now that Tate has the power of the tiebreaking vote, events are shaping up to pit Stern, an outspoken opponent of censorship against Tate, who is just as energetic in her fight against controversial programming on TV or radio. Tate is well known for her speeches and editorials on the subject after Janet Jackson’s “wardrobe malfunction” at the 2004 Super Bowl. An unhappy Stern could bring even more negative media attention to a merger that has received scrutiny for 16 months. According to analysts, neither XM nor Sirius is in a financial position to issue the record-breaking contracts to appease personalities like Stern.

Competitors Smell Fresh Meat
    Even if the merger is approved, competitors, who have had 16 months to harvest advertising sponsors while XM and Sirius have been tied up in legalities, are waiting to take down the giant with similar free services. Shaw Wu, an analyst for American Technology Research, released a report July 15 that called Apple’s iPhone an “open-ended growth story,” and that tens of millions of applications had been downloaded from Apple’s new AppStore 2.0 including AOL Radio and Pandora, free services that could offer more with a massive advertising budget.
    Satellite News reported that uXM and uSirius, two programs that work with valid satellite radio subscriptions, could cut hardware sales out of the picture for both companies as downloads to the iPhone could turn the competitor’s hardware into a superior platform.
    Early on in the debate, as far as 16 months ago, the Consumer Federation of America (CFA) and Consumers Union (CU) believed that it was essential that XM and Sirius carry an enormous burden to demonstrate why officials should allow this merger. The CFA and CU claimed they saw no evidence demonstrating how consumers will benefit from less satellite-radio competition and urged the U.S. Department of Justice and the FCC to reject this merger.
    If the deal goes through, will customers stay loyal after three years of a price lock? Will Stern abide to a tighter set of content guidelines? Will the “open-ended growth story” of Apple’s iPhone deal the coup de grace to the battle-worn satellite radio companies?