A day after comments by Martin in the Washington Post were viewed as positive by the street, the FCC chairman issued more neutral talk today that centered on the possibility of additional or more stringent concessions being considered in the merger process.
During all of this, Stifel analyst Blair Levin issued a note saying that the end game on the merger may be close. Levin, an analyst that is well in touch with the FCC and regulatory process noted that Commissioner Tate will ultimately vote for the merger, but may seek additional or strengthened concessions. I have agreed that on the GOP side, that Tate was the most likely to be a wild card in this situation. She is currently out of town on business.
In his note Levin stated, "As of Ms. Tate’s departure, we don’t believe she had yet finalized her views on whether the merger should be approved, though we continue to believe she is likely to end up voting for the deal, albeit with some conditions that are not in the draft order currently circulating among the commissioners. We don’t know what additional conditions she would seek — and she has at times expressed a broad range of concerns – but we would not be surprised to see some strengthened enforcement actions and further details on radios and diversity"
Commissioner Tate recently had meetings with Ibiquity as well as Sirius and XM . There has been a good deal of pressure to have HD chips installed in all satellite radio receivers, and Tate has been lobbied hard by terrestrial radio groups. At one point terrestrial radio representatives forwarded anti-merger "talking points" to the commissioner.
While the theory of HD radio chips in SDARS receivers may seem consumer friendly, there are indeed issues with the concept. A major stumbling block is the business end of the Ibiquity proposal. Who pays for all of this. Ibiquity told Tate that the cost is between $10 and $12 per chip. The natural question would be why SDARS should pay for even that. A second stumbling block is that the Ibiquity proposal tries to circumvent negotiations with auto manufacturers as well as hardware manufacturers. GM and Toyota came out against Ibiquity this week, and Pioneer has come out against it in the past. With major manufacturers making strong cases against the deal, Tate could have trouble bringing this issue as a concession. The third stumbling block for HD is Open Access. How open would open access be if manufacturers were required to pair HD with SDARS? What if a manufacturer only wanted to pair an MP3 player?
Levin could well be right that additional concessions may be sought by Tate, as well as other commissioners, but in the end, if Tate is the swing vote, I see her demands far more merger friendly than say the demands of commissioner Copps.
The draft order had built some excitement that the merger could be near. In my opinion, Martin and McDowell would vote for the merger as proposed in the Draft Order. If Tate is indeed considering deeper concessions, they should be panned out upon her return. The beginning of July has slipped into the middle of July. It would be nice to see a decision by the end of July. Anything beyond will crimp the satellite providers even more, as they are now ramping up for the all important Q4. A-La-Carte radios on the shelves for Q4 would not only be street friendly, but consumer friendly as well.
Position: Long Sirius, XM.