Justice Clears Sirius-XM Merger; FCC Decision Still Pending

— The U.S. Department of Justice issued an outright approval March 24 of the proposed merger between Sirius Satellite Radio and XM Satellite Radio, leaving the U.S. Federal Communications Commission (FCC) as the last remaining hurdle to the deal. The Justice Department’s antitrust division concluded after a yearlong review that the merger would not substantially reduce competition.

The department said in a statement that three factors led to the approval: a lack of competition between based Sirius and Washington-based XM for existing satellite radio customers; the prospect of “alternative services” that should become “increasingly attractive” to consumers; and efficiencies from the merger that could benefit consumers.

The statement said the fact that customers cannot listen to both systems with common user equipment means there has never been significant competition for current subscribers.

Meanwhile, satellite radio continues to face stiff competition from traditional radio, and increasingly from high-definition radio, Internet radio and personal listening devices such as iPods.

The National Association of Broadcasters and some consumer groups had opposed the merger, announced in early 2007, arguing it would create a monopoly.

The Justice Department statement can be read in its entirety at http://www.usdoj.gov under press announcements.

The Justice Department review was conducted in consultation with the FCC, which is doing its own review. At press time, the FCC had given no indication of when it might have a decision.

In a March 25 note to investors, Alden Mahabir, senior vice president of media equity research at Utendahl Capital Partners LP of New York, said it is unlikely that the FCC would go against the Justice Department finding. “We expect the FCC to give its decision on the merger within the next couple of weeks,” he said. “Given the track record of the FCC, we are hard pressed to believe it will block the merger after it received approval by the [Justice Department].”

But Mahabir said the FCC could impose conditions on the merger, such as pricing constraints or a requirement that the combined company offer programming on an a-la-carte basis. He said that given the Justice Department’s ruling, however, it is unlikely that any FCC conditions would be onerous, and that the merger will give the merged company a much needed boost as it faces adverse trends including declining auto sales.