FCC Commissioners Will Approve XM-Sirius Deal
Satellite-Radio Merger
Will Pass After Firms
Pay $20 Million in Fines
By AMY SCHATZ and SARAH MCBRIDE
July 24, 2008

Commissioners at the Federal Communications Commission have reached a tentative deal to approve the proposed merger of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc., FCC officials said Wednesday.

Commissioner Deborah Taylor Tate is expected to cast the final and deciding vote on the deal shortly, the officials said, after details are resolved on several outstanding enforcement issues. In exchange for her vote, Ms. Tate and FCC Chairman Kevin Martin have been negotiating with the companies to pay upward of $20 million in fines for violations regarding tower locations and power limits, people close to the negotiations said.

The companies are valued at $7.5 billion combined.

The deal will allow Sirius to make a big marketing push at holiday time, traditionally a big selling period for satellite radio. Within three months, the company is expected to have new à la carte radios on the market. These will allow consumers to mix and match 50 or 100 radio stations from the two services.

Even without a new radio, consumers will have new options. For example, a bare-bones plan of just 50 stations from one of the two services will cost $6.99 a month, compared with $12.95 for more than 100 stations currently. Consumers will also likely soon see a number of programming changes as the companies get rid of redundant programming.

For the companies, the deal will come at a steep price. They are expected to enter into a consent decree, with XM paying about $17.5 million and Sirius paying about $2 million, to settle complaints they produced satellite radio transmitters that exceeded FCC power limits and placed booster towers in unapproved locations.

The deal would resolve the issue of stronger-than-permitted radio receivers and repeaters, which take satellite signals and transmit them to radios in many urban areas. The companies have tried to modify overactive repeaters and tweak newer radio models, but the quirk has led to satellite-radio signals bleeding into some local-station signals.

Ms. Tate has suggested a variety of other conditions. People close to the negotiations said these wouldn't significantly change terms already agreed upon by the companies. In June, the companies agreed to a three-year price freeze for existing customers. They also agreed to set aside about 8%, or about 24 channels, of their combined lineup for use by educational and minority broadcasters.

Notably, the deal wouldn't require the companies to include technology in their radios allowing consumers to receive digital signals from local radio stations. That is a blow to broadcasters who want to expand the number of consumers who listen to their new digital stations.

An adviser to Ms. Tate didn't respond to a call for comment. Exact details of the deal are unknown because FCC officials and company lawyers are still working them out.

Ms. Tate's vote would end the agency's 13-month review of the deal and would clear the final hurdle for the merger, which was approved by the Justice Department in March. Ms. Tate's vote was critical, since the FCC's four other commissioners were split evenly on whether to approve the deal.

The new options that would be available through the merged companies, including the bare-bones plan, could significantly reduce churn, or the number of subscribers who ditch the service each year, said Tony Wible, an analyst at Citigroup. As the economy enters tough times, he said, many consumers might prefer to switch to a low-frills option rather than cancel.

XM declined to comment. Sirius didn't respond to requests for comment.

Write to Amy Schatz at Amy.Schatz@wsj.com and Sarah McBride at sarah.mcbride@wsj.com