Satellite radio companies to pay US$19.7M

By JOHN DUNBAR
Associated Press    
July 24  

WASHINGTON (AP) — Approval of a merger of the nation’s only two satellite radio companies was imminent Thursday after the pair agreed to pay $19.7 million to settle charges they violated federal rules.
                                                                                                                    
Sirius Satellite Radio Inc.’s proposed $3.9 billion buyout of rival XM Satellite Radio Holdings Inc. has been before the Federal Communications Commission for 16 months.

The five-member commission is deadlocked at 2-2, but Republican Deborah Taylor Tate was expected to cast the deciding vote approving the deal once a consent decree outlining the enforcement action is circulated for a vote.

“This was an issue that Commissioner Tate thought was important for us to deal with prior to her supporting the merger,” FCC Chairman Kevin Martin said Thursday. “I think that this was a significant issue that we can take off the table that I think will allow us to move forward soon on finishing up the merger.”

Tate had apparently sought a fine of $8 million, according to FCC officials who asked not to be named because the deal was not yet final.

Martin said the agency reached an agreement late Wednesday night where XM will pay $17.5 million and Sirius will pay $2.2 million to resolve interference complaints and violations related to land-based signal repeaters operated by the companies.
                
Martin said XM’s penalty was greater because the company’s offense was more egregious. He said that XM had operated more than 300 repeaters that were in violation of FCC rules.

“And even more significantly,” Martin said, “XM had continued to operate their repeaters without authority when they were in violation.”

The agency was free to pursue the enforcement action against the companies outside of the merger process, but Tate apparently wanted the matter settled before approval. Tate has not responded to requests for comment.

The Justice Department approved the deal in March without conditions, saying the companies don’t really compete because customers must buy equipment that is exclusive to either XM or Sirius, and subscribers rarely switch providers.

DOJ also agreed with the companies’ argument that they compete with other forms of audio entertainment, including digital radio, Internet-based radio stations and even devices like Apple Inc.’s iPod.

FCC approval faced a steeper climb because the companies were prohibited from combining under terms of their licenses. The agency struggled to come up with a way to show that allowing a satellite radio monopoly was in the public interest.

The companies voluntarily agreed to a set of conditions, including a three-year price cap and an 8 percent set-aside of “full-time audio channels” for public interest and minority programming. They will also adopt an “open radio” standard that may lead to a greater variety of features in radios and greater competition among manufacturers.

Sirius and XM also have promised to include a limited “a la carte” offering that would be available within three months of the close of the deal and allow listeners to pay only for the channels they want to receive.

The vote on the buyout will apparently be split along party lines. Democratic commissioners Michael Copps and Jonathan Adelstein have both voted against the merger while Martin and fellow Republican commissioner Robert McDowell have voted in favor.

Adelstein had sought further concessions from the company but withdrew his offer on Wednesday after it failed to draw support.

The two companies have a combined subscriber base of more than 18 million, according to the most recent figures. XM is based in Washington DC while Sirius is in New York City.

Under the buyout, XM shareholders will receive 4.6 shares of Sirius stock for every share of XM stock.

(excerpted from Sarah McBride's story in the Wall Street Journal July 25)

The satellite companies have promised to offer services that will allow consumers to pay less for plans that provide fewer channels -- and eventually to pick the channels they want. The standard monthly subscription price for each company's programming is now $12.95, but going forward the services will offer a $9.99 plan that offers fewer channels and a $16.99 plan with more stations. Listeners will also be able to knock $1 off their bills if they don't want to listen to racier fare like Howard Stern's channels on Sirius or XM Comedy. Existing radios will allow consumers to select from different sized packages using preselected stations.

XM and Sirius say they will have a new generation of radio receivers, called "à la carte," on store shelves within three months -- and possibly sooner -- that can accommodate greater programming flexibility. The new radios will allow customers to buy a package with 50 or 100 channels of their choosing, and to get additional selections by paying a little extra. But the radios will still force consumers to pick packages that are made up primarily of programming from one service or the other, with just limited ability to, for example, mix Sirius stations into a package of XM offerings.

Customers will be able to install the à la carte radios in car dashboards. But the radios won't come built into new cars -- the chief source of sales for both companies -- for a year or two, people familiar with the matter say.

Patient customers could wait until Sirius releases a truly interoperable radio that will allow customers to pick up the full lineup of programming from both services. But it will be up to a year before that radio -- which could offer more than 300 channels -- hits the market.

For full WALL ST. JOURNAL story, click HERE!

I wonder how this all effects the Canadian operations

BREAKING NEWS: FCC Clears XM/Sirius Merger

courtesy SKYreport
July 25

As expected, by a 3-2 vote, commissioners at the Federal Communications Commission late Friday approved the merger between satellite radio companies XM and Sirius, with conditions.

In a statement, FCC Chairman Kevin Martin said, "The merger is in the public interest and will provide consumers with greater flexibility and choices. Consumers will enjoy a variety of programming at reduced prices and more diversified programming choices. It will also spur innovation and advance the development and use of interoperable radios, bringing more flexible programming options to all subscribers."

Conditions tied to the FCC merger approval include requiring a combined satellite radio entity to provide a la carte programming choices to consumers. There's also a three-year cap on prices. In addition, a combined satellite radio entity must eventually offer interoperable receivers capable of obtaining both satellite radio services.

Also, the FCC is requiring a set-aside of 8 percent of channel capacity for minority and public access channels. That would amount to 24 channels, with 12 dedicated to minority programming and the remaining 12 to public access streams.

On another matter, the FCC will conduct a notice of inquiry into whether future satellite radio receivers should include HD Radio chipsets that would allow for reception of the competing digital audio technology from AM and FM stations. That move would allow interested parties to comment on the proposal.

Quoted from newsjunkie

I wonder how this all effects the Canadian operations

Basically it won't have an impact here.  The CRTC won't have the spine to stand up to this and if they do grow a pair, it won't matter because the monopoly that this is will find a way to work around this. The only place the CRTC may have some teeth on the matter is the foreign ownership level that the new company may end up with.  One would have to imagine the new Sirius packages would be forced to include the cancon stations for Canadian customers.  Yahoo.

Canadian Satellite Cos.Will Have to Merge Too

by MATT HARTLEY
Globe and Mail Update

July 26, 2008 at 9:04 AM EDT

With regulators formally blessing the merger of the two U.S. satellite radio operators late Friday, Canada's satellite radio industry appears destined for an arranged marriage of its own, analysts say.

The Federal Communications Commission in Washington voted 3-2 two approve Sirius Satellite Radio Inc.'s $3.3-billion (U.S.) buyout of rival XM Satellite Radio Holdings Inc., with Republican commissioner Deborah Taylor Tate breaking a tie Friday night.

For Canadian Satellite Radio Holdings Inc., owner of the XM Canada brand, and Sirius Canada Inc., the clock is ticking.

Both companies have publicly stated their intentions to retain their independence, but analysts say eventually the two sides will be forced to merge once their U.S. affiliates tie the knot, which raises questions for retailers and consumers alike.

"At what point does an American merger basically eliminate the meaningful distinction between the two technologies?" said Andy Woyzbun, lead analyst with Info-Tech Research Group in London, Ont. "If the programming is the same, you don't really want to continue to have separate marketing organizations and separate technologies to support in Canada."

Both XM Canada and Sirius Canada declined to comment on the prospect of a Canadian merger when contacted before the final FCC approval.

Merging the two Canadian companies would not be easy. The technologies aren't easily compatible and the two sides have waged a bitter war for the relatively small market for pay-radio in Canada. Sirius Canada boasts 750,000 subscribers while XM Canada's user base now tops 430,000.

How the two sides would value their own holdings also is a point of contention. Analysts say Sirius would argue its larger subscriber base gives it the authority to dictate terms of the merger, while XM Canada would likely leverage its stronger position in the new car market, a lucrative area for new customers, and assets such as its exclusive deal with the NHL in any negotiations.

Although a merger of their U.S. affiliates wouldn't directly apply north of the border, the writing is on the wall, said Carmi Levy, senior vice president of strategic consulting for AR Communications Inc. in Toronto.

"If you're mostly owned by American companies that have now merged, the longer you wait to align yourself with that new organizational structure, the more discord you will have in cross-border corporate relations," he said.

Even without the U.S. merger, XM Canada and Sirius Canada would likely have opted to join forces at some point anyway, he said.

"The truth of the matter is that neither one of them is large enough to make a go of it alone," he said. "They would have been looking at each other anyway for a possible merger simply to capitalize on a market that isn't large enough to sustain both of them independently."

Analysts say the drawn out regulatory process in the United States may have prevented some consumers from jumping on the satellite radio bandwagon out of fear that whatever hardware they buy could be rendered obsolete in the event of a merger.

However, Canadian retailers say that hasn't been the case.

"We have no evidence to show that sales have been impacted at all. In fact, we've seen an increase in sales year over year," Best Buy Canada spokeswoman Heather Seabrook said. "We're getting the sense that people really aren't necessarily aware of what's happening in the U.S. market."

Profit continues to elude satellite radio companies on both sides of the border. XM Canada has racked up $249-million in losses since it launched in the fall of 2005. The financial numbers for privately held rival Sirius Canada are not made public, but the company is also believed to have not yet reached profitability. Both are saddled with deep startup costs and have taken a beating on discounting radios in order to attract subscribers, who typically pay around $15 (Canadian) per month for service. XM Canada posted its first quarter of positive cash flow earlier this month.

But even as the two sides duke it out for paying Canadian customers, emerging entertainment options, such as Internet radio, are threatening the industry as a whole.

New multi-function smart phones such as Apple Inc.'s iPhone and Research In Motion's upcoming BlackBerry Bold run on the fastest cellphone networks available and provide lightning-fast mobile Internet connections that could encroach on the niche market to which satellite radio caters.

Already Internet radio sites such as Last.fm and Virgin Radio have created iPhone applications that allow users to listen to music over the mobile Web through their phone. Analysts say that as data charges fall, the popularity of these services is bound to increase.

"There's a window of opportunity for both Sirius and XM ... that is going to close rapidly once the Internet solidifies its position as a delivery mechanism for entertainment in all venues," Mr. Levy said.

"That represents the biggest long-term threat to satellite radio ... We're heading towards a convergence-driven economy for mobile users, and satellite radio is highly vulnerable to essentially being left in the dust if it doesn't differentiate itself along the way," he said.

With files from The Associated Press