XM and Sirius: Coming "Soon"

Break out the party hats, even if that means dusting off the cobwebs. A resolution in the painstakingly long merger approval process between XM Satellite Radio (Nasdaq: XMSR  ) and Sirius Satellite Radio (Nasdaq: SIRI  ) may finally be on the way.

Speaking on CNBC yesterday, FCC Chairman Kevin Martin said of the satellite-radio hookup that his regulatory agency "will hopefully be able to do something on it soon.”

Soon? Really? I'll believe it when I see it. The cynic in me is skeptical, especially when it comes to the relative usage of "soon" by someone who has taken nearly 16 months to drum up a decision. Yes, it really has been that long since the two deficit-saddled radio providers originally agreed to join forces.

How soon is now?
I opened up the floor yesterday, asking readers to submit their calls for when the FCC will hand down a decision. The responses were all over the map, with some readers offering up a few humorous zingers.

"My FCC prediction date is July 24th," BeagleBrigade offered up. "I am not sure if I want to say 2008 or 2009 yet."

"It seems the FCC has more important things to do like fight the war on terror or figure a solution to world hunger," batg20 serves up, waist-deep in sarcasm. "Oh wait, I forgot. The FCC doesn't do any of that stuff. Their job is to regulate Communication. So why are they wasting tax payers time and money with a lengthy process of a simple decision? Yes or NO."

However, a few of you seem to think that Martin means it this time. Why would he be on CNBC -- the same network where TheStreet.com's (Nasdaq: TSCM  ) Jim Cramer has raked Martin's agency over the coals for the drawn-out courtship -- unless a decision is about to be reached?

That is gtw1077's logic in expecting the FCC to hand down a decision as early as this afternoon. Morey08 also suggests that the announcement will come after the market closes today.

That may be a bit ambitious, but fans of the merger may warm up to the FCC's ultimate decision.

Martin didn't reveal which way his agency is leaning, but he did point out how XM and Sirius have already agreed to concessions that include capping subscriber prices "for an extended period" of time and allowing listeners to subscribe to individual channels.

Why is that a good sign that the FCC will sign off on the deal? Well, you don't brag about the fact that the subjects of your inquiry are bending over backwards in agreeing to concessions, only to pull the rug out from under them. That isn't a negotiation. That's a snuff film.

Be careful what you wish for
The amusing side note in all of this is that the concessions being raised may work against the thinning pool of objectors to the deal. Beyond select lawmakers and terrestrial-radio lobbyists, few people are still speaking out against the proposed merger.

What does FM and AM radio have against the deal? Well, XM and Sirius are reporting mounting losses as they try to turn their growing subscriber counts into profits. At least one Wall Street model-cruncher -- Citi analyst Eileen Furukawa -- has noted that the merger could bring about cost savings of $7.2 billion. The synergy should transform two money-losing businesses into a larger, profitable entity. Terrestrial and satellite radio compete for commuter eardrums.

Conventional radio operators like Clear Channel (NYSE: CCU  ) , Cox Radio (NYSE: CXR  ) , Beasley Broadcasting (Nasdaq: BBGI  ) , and Cumulus Media (Nasdaq: CMLS  ) would be better off with an unchecked merger, where XM and Sirius can raise prices. By capping subscription rates and offering even cheaper a la carte plans, satellite radio will actually be positioned to take even more listeners away from terrestrial radio.

The concessions are still important. They show that the merger will benefit consumers' wallets, even if that comes at the expense of satrad's competitors.

An FCC decision; concessions that terrestrial radio will regret; and the backlash over a regulatory body taking so long to pass or nix a planned merger. What do these things have in common? If we're to believe Martin this time, they're all coming soon.  

More Foolishness:

XM Satellite Radio is a former Rule Breakers stock pick. A free 30-day subscription will shed some light on why the satellite-radio company made the cut before being cut.

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2008, at 11:41 PM, fccsucks wrote:

    Pretty good article, however there is one misconception that was stated in the article that seems to have people confused.

    The supposed worry is that if the companies merge they will have the unlimited ability to jack up rates as high as they want. As if customers are so dumb that they'll keep paying expensive rates for a crappy product. Further, if the merger is allowed to go through this will keep this from happening.

    On the contrary, if the merger doesn't go through, then the companies will undoubtedly have to raise rates. They are losing money right now and costs can't be cut anymore. They can only be profitable by raising rates.

    If the merger is allowed to go through, then the best way to become profitable is to lower rates.

    It sounds counter-intuitive and goes against the "conventional" thinking, but the merger will only help consumers, while not allowing the merger will hurt them.

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