XM, Sirius promise low cost packages, more choice

NEW YORK/WASHINGTON (Reuters) - U.S. satellite radio companies Sirius (SIRI.O) and XM XMSR.O promised on Monday a variety of subscription packages that cost up to 46 percent less than current plans if their merger is approved.

In a bid to allay critics' concerns that their merger would raise prices and limit programming choices, the two companies announced several new packages they said would offer consumers more choices than they could provide individually.

Under one package, customers could pick 50 channels on either XM Satellite Radio Holdings Inc.'s or Sirius Satellite Radio Inc.'s systems for $6.99 a month. Additional channels could be added, starting at 25 cents for some music and news channels, ranging up to $6 for shock jock Howard Stern's show.

Currently, subscribers pay about $13 a month for more than 100 stations on either XM's or Sirius' systems.

"We said we would provide more choice than ever before and that's what we will do," Sirius Chief Executive Mel Karmazin told a National Press Club luncheon.

The XM-Sirius deal would combine the only two providers of satellite radio service in the United States and needs approval from the Federal Communications Commission and antitrust authorities at the Justice Department.

The promise of "a la carte" programming could gain favor with FCC Chairman Kevin Martin, who is an ardent supporter of allowing consumers to pay for only the channels they wish to receive.

"If the Department of Justice approves the merger, it will be difficult for the FCC to say no. This makes it even more difficult for the FCC to say no," said Blair Levin, analyst with Stifel Nicolaus.

The two companies, which together had more than $1.7 billion in losses in 2006, said the new "a la carte" packages will work only on satellite radios that have yet to be sold. Other packages will be available on existing satellite radios.

The new programming would be available beginning within one year following the merger, which the radio companies hope to complete later this year.

The announcement failed to sway the Consumer Federation of America. "Obviously consumer choice is a good thing. But it doesn't solve the fundamental long-term problem, which is we lose competition and competition is good for consumers," said Mark Cooper, a director at the federation.

The National Association of Broadcasters, which has likened the merger to a government-sanctioned monopoly, said policymakers should not be "hoodwinked" by the announcement.

"Nothing is stopping either XM or Sirius from individually offering consumers a more affordable choice in limited program packages," NAB spokesman Dennis Wharton said in a statement.

Another of the promised packages would let subscribers choose 100 channels, including stations from both systems, for $14.99 a month. Still other options will include packages with a focus on music, news and talk stations, or "family friendly" fare for about $10 to $12.

Karmazin said that Sirius would not offer "a la carte" programming if the merger failed and said it was the synergies of the merger that made the cheaper packages possible.

Analyst David Bank of RBC Capital Markets said the move may benefit the merger, but could eventually hurt the combined company financially.

"In giving the FCC the safeguards that should greatly enhance probability of regulatory approval, potentially effectively lowering average revenue per user, XM and Sirius could also erode operating fundamentals, offsetting merger synergy values," he said.

XM and Sirius said that they will file on Tuesday their joint reply to the FCC now that a period of public comment on the merger has closed.

Consumer groups, the NAB and more than 70 lawmakers have come out against the merger.

But special-interest groups that get a platform from satellite radio, such as the National Association for the Advancement of Colored People, the Hispanic Federation and National Council of Women's Organizations have voiced their support.

Shares of Sirius closed up 2.9 percent to $3.21 on Monday, while XM shares fell 0.8 percent to $12.55, both on Nasdaq.