Sat Radio Deal Resolution Expected Soon
July 7, 2008 at 5:19 AM (PT)
SIRIUS SATELLITE RADIO INC.'s acquisition of rival XM SATELLITE RADIO HOLDINGS INC. may be cleared by federal regulators this month, and it can't happen fast enough for XM. As the regulatory review drags on, the company is struggling to add enough new listeners to cover its massive operating costs, and slumping automobile sales further dim future prospects. Analysts say lobbying by traditional broadcasters opposed to the deal is one reason the regulatory review is taking so long.
XM is struggling with higher borrowing costs and reported a wider loss in its most recent quarter. The company recently refinanced $400 million of its debt at a much higher interest rate and borrowed another $100 million just last month. That's on top of $1.6 billion in existing debt. Both companies say they could continue to operate separately if the deal is shot down, but XM would likely face a much tougher time refinancing its debt on its own.
"The process appears to be broken," said KEN FERREE, a former chief of the commission's media bureau. The FCC's 180-day target has become "meaningless," he said.
Analysts say that aggressive lobbying by the NAB and broadcasters such as CLEAR CHANNEL COMMUNICATIONS has helped extend the government's review, though some previous telecom and cable deals have taken longer. The NAB spent $2.5 million lobbying the federal government in the first quarter, though not all of that was spent on the satellite radio deal. Still, its lobbying coffers are far deeper than those of the satellite radio companies combined.
XM spent more than $200,000 in the first quarter lobbying on the deal and other issues, while SIRIUS paid several lobbyists more than $200,000 to promote the acquisition. "The amount of opposition is directly correlated to the amount of time the review takes," said SCOTT CLELAND, a consultant at PRECURSOR LLC.
But ART BRODSKY, a spokesman for consumer group PUBLIC KNOWLEDGE, defended the FCC's review and said it provided an important opportunity for public comment. The group recommended that the FCC clear the deal, with conditions.
"Is it political?" he asked. "Sure, but what isn't?"
Indeed, WALL STREET analysts expect a close vote at the five-member FCC, with the commission's three Republicans likely voting for the deal and its two Democrats possibly opposing it.