XM, Sirius plan seen testing U.S. antitrust limits

By Peter Kaplan

WASHINGTON (Reuters) - Sirius Satellite Radio's plan to buy rival XM Satellite Radio will test the limits of how much industry consolidation the business-friendly Bush administration is willing to permit, some antitrust lawyers say.

To win government approval for the $4.9 billion deal, XM and Sirius must convince the Federal Communications Commission to waive a key regulation and persuade the Justice Department that any price increases would be constrained by a competition from free, over-the-air radio and new technologies.

"I think this case will test the government's resolve, both with respect to FCC and DOJ," said antitrust lawyer Stephen Axinn.

One antitrust lawyer, who requested anonymity, said XM and Sirius may have timed the deal to get approval before the November 2008 presidential election, fearing that such mergers would be more difficult if Democrats win the White House.

"I think a lot of people are contemplating very, very difficult transactions because they perceive there is a more sympathetic policy at work with this group than is likely to be the case with the Democrats," this same antitrust lawyer said.

Another lawyer, who also asked not to be named, said the Sirius plan to buy XM was the type of deal that had been opposed in the past. "This deal is as clear as we're ever going to get. If they approve this one, then there's nothing (that won't be approved)," he said.

But Mark Schechter, an antitrust lawyer with Howrey LLP, played down the likelihood of a slew of problematic merger proposals.

He said deal makers are pushing lots of merger proposals and saying they can get them through. "But then it goes to the antitrust lawyers, and the antitrust lawyers advise their clients of the risk. And most of those deals never happen."

Schechter also thinks there is little difference in how deals are reviewed in different administrations.

The satellite radio combination would bring entertainers such as Oprah Winfrey and shock-jock Howard Stern under one roof.

If XM and Sirius want to merge, concerns surrounding pricing, diversity in programming and equipment compatibility would have to be addressed, consumer advocates said.

The FCC's chairman has said the agency will review the deal but it faces a high hurdle as the commission prohibited one company from holding the only two satellite radio licenses.

Gene Kimmelman, vice president at Consumers Union, said a combined XM and Sirius would be in violation of FCC rules unless they get a waiver. "We think this is something that should not be easily granted given that it was a condition of winning the (licenses) in the first place."

Kimmelman said there should to be greater flexibility for consumers to pick the packages of satellite programming and more than one type of subscription fee. "The FCC will have to address some price limitations for some period of time if there is only one player in the market," he said.

The deal is being opposed by U.S. broadcasters. The government several years ago rejected a similar merger of the two U.S. satellite television companies, DirecTV Group Inc. and EchoStar Communications Corp..