The drawn-out courtship between XM Satellite Radio (NASDAQ:XMSR) and Sirius Satellite Radio (NASDAQ:SIRI) -- an engagement that has lasted longer than many Hollywood marriages -- may finally be heading to the altar.

"The commission could act by the end of the second quarter,'' FCC Chairman Kevin Martin told reporters at a Washington D.C. press conference over the weekend.

His comments are huge, since the FCC is the only regulatory roadblock preventing the two companies from tying the knot. The Justice Department signed off on the deal two months ago.

The key word in Martin's comment is "could." We have been here before. He was hopeful for a decision coming during the first quarter, back in January.

As embarrassing as it might be for the FCC to have taken more than 15 months -- and counting -- to rule on the merger, we're close to the point where there may be blood on the regulators' hands.

Red, red whine
Losses at XM and Sirius aren't new. The saving grace is that the companies are poking through the red ink occasionally to post positive cash flow. However, waiting in fiscal limbo until they are able to cash in on the merger synergies is taking its toll.

In a troubling SEC filing statement last week, XM announced that it was tapping into a credit facility to help fund an escrow required by Major League Baseball under the satellite radio provider's programming contract. It also expects to begin using a General Motors (NYSE:GM) credit facility next month.

Is indecision at the FCC slowly killing XM?

That's not an easy question to answer. Citi analyst Eileen Furukawa has projected that the merger could bring cost savings of $7.2 billion. Go ahead and do the math on what keeping the two companies apart is costing them. It isn't pretty.

There are other prices to pay for pitching a tent in regulatory purgatory:

  • Savvy retail shoppers aren't buying XM or Sirius receivers; they could be waiting for the post-merger arrival of receivers that offer interoperability between the two services.
  • XM and Sirius have scaled back their marketing, which makes sense as they put on a humble face to tiptoe past antitrust concerns.  
  • We are far removed from XM's Oprah moment and Sirius' Stern shot and well into a talent-acquisition lull that is likely the result of both financial restraint as well as the same tiptoeing modesty that is keeping ads in check.
  • Things are humming along nicely at the auto showroom front, but penny-pinching drivers may be waiting for the half-priced plans to roll out post-merger.

There's so much to gain in a combination -- and so much squandered every day that they remain apart.

I am not saying regulators should have approved the deal last year. What I am saying is that they should have approved or killed the deal last year. What the FCC is doing now is the bureaucratic equivalent of a snuff film.

Hitting the concessions stand
The longer the FCC holds off on a decision, the more likely it is that XM and Sirius will have to offer concessions to seal the deal. If the FCC simply nods or shakes it head, unconditionally, the public will wonder why it didn't make this call last year.

It will also be the regulatory body's way of handing off the embarrassingly long decision to the satellite-radio providers themselves.

Concessions can come in many different flavors. The most obvious could be something as simple as a temporary subscription-rate freeze. The move would appease consumers. As long as it doesn't get in the way of offering premium services such as backseat video (at Sirius) or traffic navigation (at XM), it shouldn't be a dealbreaker.

Suggestions that XM and Sirius sell back chunks of spectrum, though financially appealing to the cash-hungry satellite radio providers, is highly unlikely. It would wipe out channels for those with current receivers that receive only XM or Sirius. If concessions include XM and Sirius replacing all existing radios with interoperable units, the deal is as good as dead if XM and Sirius are the ones that have to bankroll the replacements.

There is only so much that XM and Sirius can bend at this point, regardless of how important the deal is to them.

The timing is terrible, on many levels:

  • XM and Sirius still need to finance the merger and at a time when lenders aren't opening up their billfolds.
  • High gas prices are taking a toll on more than just discretionary spending. The Department of Transportation announced that we drove 11 billion fewer miles in March than we did a year earlier. If we are spending less time in our cars, a car-based subscription becomes less appealing.
  • More cars are rolling out this year with hard drives and Apple (NASDAQ:AAPL) iPod input jacks, further reducing our reliance on dashboard radio.

In short, the FCC keeps slurping satellite radio's milkshake, but the quality of the milkshake is now a concern.

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