Long wait for satellite radio deal may end soon

WASHINGTON -- Sirius Satellite Radio Inc.'s acquisition of rival XM Satellite Radio Holdings Inc. may be cleared by federal regulators this month, and it can't happen fast enough for XM.

As the regulatory review drags on, the company is struggling to add enough new listeners to cover its massive operating costs, and slumping automobile sales further dim future prospects. Analysts say lobbying by traditional broadcasters opposed to the deal is one reason the regulatory review is taking so long.

XM is struggling with higher borrowing costs and reported a wider loss in its most recent quarter. The company recently refinanced $400 million of its debt at a much higher interest rate and borrowed another $100 million just last month. That's on top of $1.6 billion in existing debt.

Both companies say they could continue to operate separately if the deal is shot down, but XM would likely face a much tougher time refinancing its debt on its own.

Approval of the transaction would be a defeat for the National Association of Broadcasters, which represents traditional radio stations and has lobbied heavily against the deal. But the NAB may take some satisfaction from delaying regulatory approval beyond what many analysts expected.

The two companies announced the all-stock deal worth $4.7 billion in February 2007, but its value has declined along with Sirius' stock price and is now worth $2.8 billion.

The Justice Department cleared the deal in March. But the Federal Communications Commission, which aims to complete its reviews in 180 days, isn't done yet, about 400 days since the companies' formal request.

"The process appears to be broken," said Ken Ferree, a former chief of the commission's media bureau. The FCC's 180-day target has become "meaningless," he said.

Sirius Chief Executive Mel Karmazin expressed annoyance at the government's pace in a conference call with analysts in May. The companies had initially hoped to secure government approval by the end of last year.

"We share the reasonable frustration that many of our investors feel, regarding the time it has taken," he said. "I am optimistic that we are getting close to the finish line, and will be able to close the deal."

Karmazin and other executives said the delay is causing confusion among consumers and cutting into the company's retail sales. Both XM and Sirius are now obtaining most of their new customers through partnerships with automakers, which pre-install the satellite radio receivers in some cars.

Analysts say that aggressive lobbying by the NAB and broadcasters such as Clear Channel Communications Inc. has helped extend the government's review, though some previous telecom and cable deals have taken longer.

The NAB spent $2.5 million lobbying the federal government in the first quarter, though not all of that was spent on the satellite radio deal. Still, its lobbying coffers are far deeper than those of the satellite radio companies combined.

XM spent more than $200,000 in the first quarter lobbying on the deal and other issues, while Sirius paid several lobbyists more than $200,000 to promote the acquisition.

"The amount of opposition is directly correlated to the amount of time the review takes," said Scott Cleland, a consultant at Precursor LLC.

But Art Brodsky, a spokesman for consumer group Public Knowledge, defended the FCC's review and said it provided an important opportunity for public comment. The group recommended that the FCC clear the deal, with conditions.

"Is it political?" he asked. "Sure, but what isn't?"

Indeed, Wall Street analysts expect a close vote at the five-member FCC, with the commission's three Republicans likely voting for the deal and its two Democrats possibly opposing it.

The NAB and many consumer groups argue the deal will harm consumers by reducing competition, which could enable a combined company to raise prices.

The companies, which provide hundreds of channels of music, sports and talk radio programming for about $13 per month, say they will continue to face competition from broadcast radio, Internet radio and digital music players. Washington-based XM has 9.3 million subscribers while New York-based Sirius has 8.6 million.

Another likely factor in the delay, analysts said, is wrangling by the commissioners over which conditions to place on the deal. FCC Chairman Kevin Martin recommended last month the deal be approved, based partly on the companies' willingness to accept a three-year price freeze.

The companies also promised to set aside 24 channels, or 8 percent of capacity, for noncommercial and minority programming, and agreed to an "open radio" standard that allows other manufacturers to make compatible receivers.

Members of Congress have pushed for additional considerations. Last week, three Democratic senators urged Martin to require the companies to set aside at least 20 percent of their roughly 300 channels for noncommercial and minority stations, among other conditions. Five members of Congress from Minnesota sent a similar letter June 27.

But Paul Gallant, an analyst at the Stanford Financial Group, said the letters would likely have "minimal impact" at this late date.