US FCC chief near deal for XM-Sirius approval

WASHINGTON Wed Jul 23, 2008 5:03pm EDT

A person walks through the lobby of the XM Satellite Radio building in Washington, March 25, 2008. REUTERS/Larry Downing

A person walks through the lobby of the XM Satellite Radio building in Washington, March 25, 2008.

Credit: Reuters/Larry Downing

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WASHINGTON (Reuters) - The merger of the two U.S. satellite radio companies was poised for approval as a pivotal member of the Federal Communications Commission neared agreement to cast a tie-breaking vote in favor of the deal, a source familiar with the merger review said on Wednesday.

FCC Chairman Kevin Martin was close to getting the support of fellow Republican commissioner Deborah Taylor Tate to reach the three votes needed to approve Sirius Satellite Radio Inc's purchase of XM Satellite Radio Holdings Inc, the source said.

Tate's support would break a 2-2 deadlock on the five-member commission and split the vote down party lines.

A vote on the deal, worth $3.9 billion at Wednesday's closing stock prices, could come as early as this week, another source familiar with the merger review said.

As part of the approval, the FCC will require the companies to pay a $20 million fine for alleged past violations of FCC rules, this source said.

Democratic FCC Commissioner Jonathan Adelstein cast his vote against the deal on Wednesday morning after he and Martin could not come to terms on additional conditions Adelstein wanted to impose.

FCC approval is the last obstacle in a regulatory marathon for the merger that was first announced in February 2007. Antitrust authorities at the U.S. Justice Department gave their approval in March.

The merger would bring entertainers such as Oprah Winfrey and shock jock Howard Stern under the same banner. It has been criticized as anti-competitive by the traditional radio industry, and by some U.S. lawmakers.

XM shares finished up 10.3 percent to $10.04 at the close of regular trading Wednesday on Nasdaq. Sirius shares ended up 12.6 percent at $2.68.

Martin has proposed the commission approve the deal so long as the companies make available to consumers radios that receive both Sirius and XM, they cap prices for three years, offer programming on an "a la carte" basis, and make 24 radio channels available for noncommercial and minority programming, among other things.

Tate has been hesitant to support Martin's plan and has sought further conditions.

Specifics of the talks between Martin and Tate were unclear. But Tate's concerns have centered on allegations that the satellite radio companies violated some FCC rules in the past, and that they fail to pay enough in royalties to musicians, sources have said.

The FCC rule violations, to be resolved with the $20 million fine, stem from allegations that XM and Sirius exceeded allowable strength of some of their ground-based transmitters and failed to follow through on a pledge to make interoperable radios available to customers.

Tate was not available to comment, and a spokesman for Martin declined to comment. A spokesman for XM also declined comment, while representatives of Sirius were not immediately available.

Talks at the FCC have intensified over the last week, with Martin indicating he would be open to modifying the terms to win the support of other commissioners. Martin has said he hopes the commissioners will be ready to vote on the deal by the time the agency holds its next meeting August 1.

Analysts at Stifel Nicolaus said in a research note on Wednesday that an announcement about Tate's vote could come "in the near future" from either her office or the FCC.

Last week Adelstein offered to provide a decisive vote to approve the deal if Martin agreed to stiffer conditions.

Under his plan, the price caps would have been extended to six years, the number of set-aside channels would be increased to 25 percent of the companies' total capacity, and new satellite radio receivers subsidized by XM and Sirius would have had to also receive high-definition terrestrial radio.

In addition, the companies would have had to disclose technical specifications that would enable independent manufacturers to make and sell satellite radios, and they would be barred from passing on increases in programming costs to customers.

In voting against the merger on Wednesday, Adelstein issued a statement saying the FCC had "missed a great opportunity to reach a bipartisan agreement that would have benefited the American people."

Adelstein said it appeared consumers were going to get "a monopoly with window dressing."

(Reporting by Peter Kaplan; Editing by Tim Dobbyn)

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