FCC Flip Stokes Sirius

On Wednesday it was no. On Thursday it was maybe.

One day after a top regulator pointed out that rules prohibit a merger of Sirius (SIRI) and XM (XMSR), Federal Communications Commission chief Kevin Martin says those rules could be rewritten, according to Reuters.

Both satellite radio shops jumped Thursday afternoon on word of the FCC's newly malleable stance on a potential tie-up between the only two pay radio services.

The news comes after Martin was quoted Wednesday by Bloomberg saying that existing licensing regulations prohibit a single owner's controlling the two satellite radio operations. That pronouncement crushed speculation that Sirius and XM could soon combine, and the shares fell 7%.

Interviewed Thursday by Reuters, Martin said he wasn't aware of any request to change the rules.

Subscriber growth has cooled for the sector, and controlling costs has become a critical issue among investors. Sirius CEO Mel Karmazin has said he believes consolidation, in general, creates value. He has not ruled out a deal with rival XM and said last month that he believes a merger is a "possibility" from a regulatory standpoint.

Industry observers say that politically, the deal has a better chance of getting done sooner rather than later. The FCC, which is currently made up of three Republicans and two Democrats, has been friendly to mergers. If a Democrat wins the 2008 presidential election, observers say the composition of the FCC could change and deals could face higher hurdles.