XM-Sirius Success Hinges on Concessions

If special interest groups get their way, a joined XM Satellite Radio(XMSR) and Sirius Satellite Radio (SIRI) may never resemble the satellite juggernaut Wall Street is expecting the merger to create.

It has taken the Federal Communications Commission longer to review the proposed transfer of licenses in the combined company than any merger in history, analysts say. The Justice Department had taken about as long before determining in March that the merger would not be anti-competitive. Nevertheless, analysts say the new wait could mean more stipulations.

XM and Sirius have indicated a willingness to offer a la carte pricing and services as a peace offering to the FCC, which is seen as a sign of weakness -- an indication that they'll do whatever it takes to gain regulatory approval. And a la carte pricing may be the tip of an iceberg. The commission has heard a plethora of concerns and complaints from many interest groups and politicians to review and address, a process that has stretched the FCC's time clock to more than 350 days.

RBC Capital Markets analyst David Bank said that despite mobilization of multiple special interest groups to lobby against the merger, he expects the FCC will ultimately grant approval. However, "it's unclear when [the] FCC will rule and what pound of flesh it will extract," he said in a research note.

Bank writes that new stipulations -- possibly including giving up spectrum or mandating the installation of high-definition chips in satellite receivers -- could boost competitive forces and sap some of the strengths created by the merger.