Clock Ticks Slowly for XM, Sirius

The merger review starts, but few are expecting a speedy decision.
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Sirius (SIRI) - Get Report and XM's (XMSR) merger is now officially on the clock, but few expect a speedy decision.

After an

unprecedented 78-day delay, the Federal Communications Commission on Friday started to accept comments on a tie-up between the nation's only two satellite-radio players. The move starts a 180-day clock for the FCC to review the implications of the deal, putting the earliest potential regulatory decision date at Dec. 4.

Sirius and XM shares rose 2% Monday on news that the stalled merger has finally moved toward a review. Both companies have seen their stock fall 28% since plans for a merger were announced in February.

The delays to date have been due to heavy opposition lobby from the National Association of Broadcasters and steep legal hurdles. And though the FCC's clock has started ticking, observers say the review process typically involves a few time-outs.

"Assuming at least one stoppage does occur, the FCC decision will necessarily slip into the first quarter of next year," says David Trout of M&A Researcher.

The FCC has to determine that the merger will be good for consumers. As written, the original dual satellite-radio licenses prohibit sole ownership and were specifically designed to foster head-to-head competition. In order for the FCC to rewrite those rules, it has to be convinced that prices and programming selection won't be negatively affected.

As it stands, the two companies have incompatible technologies that would prevent current radios from receiving both satellite signals. Users will need to obtain new radios or some type of hardware upgrade to get combined programming.

On prices, Sirius CEO Mel Karmazin has said subscribers who already pay $13 a month won't have to pay more than $26 a month if they elect to get combined programming. Karmazin also said that the merged company could offer cheaper music-only packages and other discounts. He even welcomed regulators to apply price controls as "a way of holding our feet to the fire."

Still, the bigger hurdle for the merger lies with the Justice Department's antitrust lawyers. Washington legal experts say the deal hinges on what definition regulators apply to the satellite radio market.

A narrow view would show two satellite radio players becoming one and creating a monopoly. Antitrust lawyers would easily squash that deal. But the deal could proceed if the Justice Department considers iPods, conventional and digital radio, as well as Internet broadcasts, as part of the satellite-radio market.