How difficult of a concept is it to provide detail on a proposal? In an Exparte filing with the FCC published today, Georgetown Partners finally takes a step in giving more detail on their proposal, but avoids any subject matter that points to the important questions at hand that need due consideration.

Georgetown Partners is still trying to circumvent shareholders, as well as real business negotiations by getting their proposal mandated as a concession to the merger. Should Georgetown get what they are seeking, vast synergies in the merger would be wiped out, and the very business model of Sirius and XM would be compromised.

In their proposal, Georgetown outlines seven points that offer up a smidgen of detail, but still lack substance, and really bring up more questions than answers. After meeting upon meeting with the FCC, Georgetown still has not stepped up to the plate to give shareholders anything to consider.


Consummation of the merger shall not be permitted until a contractual leasing arrangement is submitted to, and approved by, the Federal Communications Commission and the Antitrust Division of the U.S. Department of Justice as complying with all aspects of their governing statutory provisions, consistent with the public interest, convenience and necessity, and including (but not limited to) the following requirements.


Georgetown is trying to dictate that a leasing arrangement be a condition of the merger. They are requesting that regulators demand that Sirius, XM, and the shareholders be subjected to such a requirement without any stipulation whatsoever. This is basically Georgetown Partners trying to negotiate through regulators rather than with the companies, and avoiding the shareholders entirely. A realistic proposal may include a term such as "lease for fair market value". As readers can see, Georgetown Partners has never stepped up to the plate to give any inkling as to what exactly they are willing to commit to this lease.


Satellite and network capacity must consist of at least 20% of the merged entities' total licensed bandwidth capacity, as measured in megahertz, and shall be leased on an exclusive basis to an entity that is totally independent of and unaffiliated with Sirius or XM. Such lease shall have a term coterminous with FCC license(s), including replacement or new licenses held by Sirius, XM, or the merged entity. Included shall be all current and future existing network infrastructure and related services to support use of uplink, satellite, and terrestrial capacity in the same manner as employed by the merged entity.


The 20% is based on the actual spectrum rather than the channels. By this statement, if the merged company were to develop a modulation overlay technology, that technology would also be given to Georgetown Partners, free and clear of research, development, or expense. The language of this puts all of the onus and expense of a new business on the shoulder of Sirius and XM. In simple terms, the new entity gets to utilize assets and working capital of the merged company without risk. Basically the merged company is being asked to do all of the grunt work for Georgetown Partners without having a fee for such work established.


Lesee's programming shall be carried in the same geographic areas and with the same quality and signal strength as programming provided by the merged entity itself.


It would appear that this is a slick statement designed to get access into Canada as well as other future markets, as well as to place the burden of all upgrades for Georgetown Partners on the merged company. If a new codec is developed, a new modulation overlay, or a new market (such as Mexico) comes into play, Georgetown will get all of the benefits. Once again, Georgetown Partners is placing all of the burden for its business on the merged company.


The merged entity must ensure that all programming broadcast on behalf of the Lesee is capable of reception on all radios and other receivers now in existence and to be distributed in the future, including receivers capable of video, audio, data and telemetry, in the same manner of the merged entity's services are received.


So the merged entity is now responsible to activate old radios which are not subscribed. Georgetown notes that consumers have paid for these radios, and estimates that there are 17 million of them. Georgetown Partners fails to mention that Sirius and XM, as well as shareholders have also invested money into each of these radios. Why should the merged company spend resources to activate radio's which will not deliver benefit? I personally have a small collection of Sirius and XM receivers that sit in a shoebox in the corner unactivated. I have upgraded devices over the years, and simply have no use for the old radios. Why wouldn't Georgetown Partners create their own call center where people with deactivated radios can call into? Georgetown could then collect the pertinent information, and forward it to Sirius and XM for activation (assuming that these concessions were to happen)? Once again, this is another example of getting a business on a silver platter without having to do anything to operate this business. Is Georgetown looking into being in the audio business, or is the merged company going to be responsible for a video and data initiative as well?


Lessee shall have the sole right to determine the content of its programming, including full control of the production of all content, the bandwidth used to transmit it, and factors affecting its audio quality, video definition, robustness, and any other factor affecting its perceived quality and consumer perception.


Is Georgetown Partners going to self perform their content? It is interesting that terrestrial radio is not jumping up and down against this proposal. Georgetown is proposing a terrestrial radio advertising supported model that will be available to consumers for free, and instantly will be available to over 10% of the market. Clear Channel has 9% of the market. Instantaneously, Georgetown would be bigger than, and in more markets that Clear Channel!! One would imagine that the Georgetown model is more of a threat to terrestrial radio than the Sirius and XM model. Why is there virtual silence from terrestrial radio on this? Especially considering the number of meetings that Georgetown has had with the FCC. Are there already side deals with terrestrial players? Is Georgetown going to hold and run this operation, or are they going to sell channels off to the highest terrestrial bidder? Imagine Georgetown with the capability of 60 channels. Sell 10 to CBS, 10 to Westwood One, 10 to Clear Channel, etc. Remember, Georgetown has no experience in this medium, yet walks with a confidence that they are going to hop into it and make money. The statement still lacks substance on what Georgetown is really bringing to the table.


Lessee may sell advertising on its programming free of any restrictions by the merged entity.


Operationally, what else is Georgetown partners going to do? By their proposal they program stations (or perhaps they sell this off), and advertise. They are not having to worry about any other aspect of the broadcast business!!


Lessee will pay a negotiated lease rate on commercial terms as specified in the agreement entered into between the parties and submitted for approval to the Federal Communications Commission and to the Antitrust Division of the U.S. Department of Justice.


If Georgetown Partners were serious, they would be in negotiations with Sirius and XM rather than first trying to get such a lease mandated by regulators. Georgetown Partners should lay their cards on the table. There are too many questions and not enough answers.

It takes a lot of balls to make a proposal such as this and not offer any detail whatsoever. Georgetown is seeking a business with virtually no risk and wants to reap all of the benefits. Georgetown is coy bin their stances so far, and there is a reason for this. If they were proposing a reasonable deal they would have nothing to lose in getting some detail on the table. Their proposal is full of restrictions for the merged company and latitude on Georgetown. It is full of requirements for the merged company and liberties for Georgetown. It seeks guarantees and commitments from the merged company, and a free roaming business model for themselves.

If terrestrial radio is scared of a merged Sirius and XM, why are they strangely silent on the potential of a satellite delivered radio service available for free and broadcasting to current FCC decency standards? Something here does not smell right, and as things currently stand, such a proposal would be a deal breaker seven ways to Sunday.

Position - Long Sirius, Long XM, No Position Clear channel, CBS, Westwood