FCC

According to the Associated Press, FCC Commissioner Adelstein has put an offer on the table that would enable the merger to happen. Adelstein, a democrat commissioner, was not widely considered as one of the commissioners that would support the merger. By Adelstein putting an offer on the table, there is perhaps a bit of insurance for the merger to proceed if republican commissioner Tate for some reason seeks even more stringent concessions.

Adelstein is asking that additional concessions be added to the deal in order to gain his support. Adelstein is said to be seeking:

• Pricing cap for six years instead of three.
• Commitment of 25% of the spectrum for informational and minority programming.
• Other requirements that were not specified

There were no details offered on whether the 25% of the spectrum would be under control of the merged entity.

In reference to the issue Adelstein stated, “It’s critical that if we’re going to allow a monopoly, that we put in adequate consumer protections and make sure they’re enforced.”

This latest news now puts commissioner Tate in even more of a spotlight than she was previously. Conventional thinking would have many believe that Tate would seek fewer concessions that Adelstein. Because of this, part of the finalized picture can now begin to take shape, and the street can begin to extrapolate where the conditions will fall.

Sirius and XM have not offered any official response to the Adelstein proposal. For quite some time it has been insinuated that giving back too much spectrum would be a deal breaker. Exactly where the spectrum line is drawn is unknown, but estimates in the neighborhood of 10% have been popular.

[ Via Associated Press ]

Position: Long Sirius, XM.

RCN, a cable television operator has expressed concern about the Sirius and XM merger with the FCC. In a new twist, RCN is worried that SDARS will not offer a viable competitive choice for music over cable systems. RCN is stating that Sirius and XM have expressed that they are not interested in broadcasting their talent over cable systems, or expanding their offerings any further than the existing deals with Direct TV (XM is on this service) and Dish Network (Sirius is available on this network).

The chief issue for RCN is that the only real source of audio programming will be Music Choice, a service owned by RCN competitor Comcast. RCN feels that because Sirius and XM are not looking to expand into cable that a situation is being created where there is only one source (Music Choice) that can name their own price.

Whether the concerns expressed by RCN will be fully hashed out is yet to be seen. What is interesting here is that clearly the audio entertainment landscape has evolved well beyond AM and FM.

[ RCN Filing ]

Position: Long Sirius, XM. No Position Comcast, RCN.

On the heels of a positive Washington Post article where Chairman Martin seemed to hint at merger approval, we were informed that Sirius Satellite Radio and hopeful merger partner XM Satellite Radio had meetings with the offices of all three of the republican FCC commissioners on July 9, 2008.

In contrast to previous filings where the companies typically state that they discussed “pending issues raised in recent filings”, the new language that they have now added says, “including the previously filed voluntary commitment letter.”

In order for merger approval, Sirius and XM need three out of the five commissioners to vote in favor of the license transfer. Popular thinking is that the three GOP commissioners are most most likely to approve the deal, thus allowing the merger to happen.

[ Meetings: Martins Office, Tates Office, and McDowell ]

Position: Long Sirius, XM.

In a filing with the FCC some of the conversations between Ibiquity and commissioner Tate have become more clear. Specifically, Ibiquity wrote in an Exparte that they were responding to “certain issues raised in our meeting last week” (referring to a previous meeting between Ibiquity and Tate).

Questions Tate raised:

1. Tate asked Ibiquity to clarify the exact terms of the condition that Ibiquity has proposed (inclusion of HD chips in SDARS receivers).

2. The cost implications of any such condition.

3. The implications should the FCC adopt the Ibiquity proposal.

The answers from Ibiquity are as expected, but the interesting aspect is that Ibiquity estimates the cost of installing an HD chip to be $10 to $12. While the cost seems minimal, they are speaking purely in terms of the cost of the chip, and not getting into the costs associated with the overall subsidy for the installation, which is a substantial portion of the cost involved. Even at $10, the cost for 5,000,000 install would be a cool $50,000,000. Thus, not only is Ibiquity seeking to circumvent negotiations with OEM’s , but wants SDARS to foot the bill for the chipsets as well.

HD Radio may well be a great product, but asking SDARS to foot the bill is stretching things a bit far. Some believe that an open access condition would take the wind out of the HD proposal. This may be the case, but clearly Tate was considering the proposal in some manner.

Ibiquity FCC Filing

Position - Long Sirius, XM.

On July 7, 2008 Sirius and their representatives held a meeting with Commissioner Tate in reference to “pending issues raised” with reference to the proposed merger between Sirius and XM. Tate is seen by many as a possible swing vote in the merger proceedings, and that of the three republican commissioners she may be the one that seeks additional concessions above that which is in the current draft order.

FCC Filing On Meeting

Position: Long Sirius, XM.

Months ago, when Georgetown Partners began their quest for 20% of the SDARS spectrum, I composed a list of questions that I felt should be answered. Among those questions was whether Georgetown was looking to build their own satellite radio company, or merely going to act as an “auctioneer” of channels to terrestrial radio broadcasters.

What I noted then was that Davenport lacked radio experience. I found it odd that someone would seek 20% of the SDARS spectrum (about 60 channels), and not have a plan as to how to fill that spectrum with content. I alleged at that time that perhaps the plan was to grab the channels, and then go to terrestrial radio giants like Clear Channel, CBS, etc. and offer them blocks of channels that would be available in every market.

I also found it odd that the National Association of Broadcasters and terrestrial radio stations were dead silent on this issue, despite the fact that Georgetown was having meetings with the FCC at a break neck pace. Had Sirius or XM proposed 60 channels of free commercial supported radio, the NAB and terrestrial radio giants would have filed complaint after complaint with the FCC. Somehow though, the proposals of Georgetown Partners got no response at all from terrestrial radio.

Now, in the eleventh hour, Georgetown’s Chester Davenport has announced that he is prepared to partner with Entravision to help fill all of the channels he is seeking. Entravision is a Spanish language based media company with 48 terrestrial radio stations, 41 of which are located in the top 50 Spanish markets in the United States.

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Well, it is now official and in black and white. The FCC updated their “items In Circulation” list today and the proposed merger of Sirius and XM is on the list. The Draft Order circulation happened on June 17th.

At this point, the commissioners all consider the draft order and make their voting determinations. Watch for possible announcements about voting intentions over the coming two weeks, although commissioners do not always give an indication of their voting intentions.

With the Draft Order officially issued, an answer on the proposed merger is within reach.

FCC Items In Circulation List

Position - Long Sirius, Long XM

Have you ever planned a road trip to a fun destination with a child in the car? Have you noticed that just at the point where the child is frustrated with the length of time the trip is taking the inevitable question is asked: Are We There Yet? The answer is virtually always the same….”Soon” Today, FCC Chairman Kevin Martin expressed the “Soon” word in an interview with CNBC.

What sector watchers want to know is if this is “Soon” as in the classic definition, or is it “Soon” as in that road trip where “Soon” seems to drag on forever.

Where government is concerned, “Soon” is an arbitrary period of time that leaves enough wiggle room to fall somewhere between tomorrow and a year from now. Thus, it is little surprise that the comments of Martin did not bolster the Sirius and XM equities. The street has been told “Soon” too many times now, and the meaning of it has become so blurred that people give up in trying to guess what was actually meant by the FCC commissioner.

So what are investors doing? They are playing their investing version of “Punch Buggy” or “I Spy” to pass the time while the ultimate goal of a merger decision is pending.

In case you were wondering, Kevin Martin has yet to use “Really Soon”, “Really Really Soon”, “Around The Next Corner”, or “Over The Next Hill” as a response to the “Are We There Yet” questions.

On the positive side, the FCC has had all of the information to consider for some time now. They have drafted proposals, and discussed concessions with Sirius and XM. It goes without saying that “Soon” may well be around the next corner, so long as we don’t run out of gas before getting there.

Position - Long Sirius, XM.

U.S Electronics has outlined a specific open access proposal for the FCC to consider. Some sector followers believe that open access is a concession that could carry some weight with at least some of the FCC commissioners. While the U.S. Electronics proposal would take away the ability of Sirius and XM to make their own hardware, it would also make the “interoperable radio” as well as the “HD chipset inclusion” issues virtually disappear because the merged company would no longer be in the hardware business.

Open access as a concept seems like a pretty workable situation, but there are concerns that still need to be addressed. Thus far, the only distributor/manufacturer seeking an open access condition is U.S. Electronics, a company currently in litigation with Sirius over the hardware that the company made, as well as other issues. With retail sales being weak, it does not seem like manufacturers are knocking on the door in an effort to make hardware for satellite radio. The fact that the list of manufacturers seeking the condition only has one member is a bit of a concern in that unless the marketplace wants to participate, many of the theoretical benefits that open access promises would not come to fruition.

U.S. Electronics lists Sirius Buzz a a supporter of the concept of open access, which to a certain extent is accurate. I feel that the concept can be sound given the right conditions. Whether those conditions can happen is another issue altogether. Read It All After The Jump

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Back in December of 2007 the FCC approved new media ownership rules by a vote of 3 to 2. The commissioners against the new rules were democrats Copps and Adelstein. Both commissioners have now issued statements in light of the recent senate vote to overturn the new rules. President Bush has promised a veto of any overturn attempt, so of course the entire issue is a contentious one. The National Association of Broadcasters has come out against the Senate resolution citing “seismic changes in the media landscape over the past three decades.”

What sector watchers may find interesting are the comments of commissioner Copps and Adelstein. Can their position on the media ownership rule translate to their likely opinion on the satellite radio merger? The answer to that question is subjective, but the tenor of their comments could lead one to believe that the democrat commissioners will not be positive votes on the issues surrounding the proposed merger of Sirius and XM.

Adelstein Comment

“The Senate’s complete rejection of the FCC’s attempt to permit greater media concentration represents a great victory of the people over the powerful. In light of the Senate’s action, any proposed transaction seeking to exploit the new rules will likely face intense scrutiny. This vote reflects a strong consensus across the ideological spectrum against further media concentration, from left to right and virtually everybody in between. The FCC veered dangerously off-course from the American mainstream, so our elected representatives are trying to steer us back. This unequivocal, bipartisan rebuke of the FCC is a wake-up call for us to serve the public rather than the media giants we oversee. Chairman Inouye, Senator Dorgan, Vice Chairman Stevens, Senator Snowe and the many other Senate leaders and public interest organizations who pushed this forward deserve our congratulations and the thanks of the American people.”

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