Satellite Radio Merger Clears Key Hurdle

XM and Sirius Satelliteradio-- the nation's only two satellite radio operators -- have cleared a major hurdle: FCC Chair Kevin Martin recommended approval of their merger. This puts them one step closer to the deal that's now valued at roughly $7.5 billion dollars, based on recent stock prices.

This follows the Justice Department's approval of the merger in March. The theory behind Martin and the Justice Department's approval hinges in the idea that creating a monopoly in the Satellite Radio space won't hurt consumers because Satellite Radio also competes with a range of other media-- from traditional radio, to Internet radio, even MP3s.

This whole new approach could set a new precedent for the way future media mergers work. Though future mergers will also depend on how a new presidential administration weighs in.

That being said, Martin is requiring some concessions to protect consumers, and the companies have already agreed to them. The companies have to turn eight percent of their satellite channels--24 of them--over to non-commercial and minority programming. They have to put a price cap on the combined company's service fees for three years. They'll also have to offer new options for a la carte pricing, so you can pay just a couple of dollars per channel for the few you want to subscribe to. And perhaps the biggest gesture to encourage competition, the combined company will have to create an "Open Radio" standard-- licensing their technology to other manufacturers within a year of the deal's close, so other companies can create compatible radios.

Both stocks--SIRI and XMSR--were trading up on this news. The word on the street is that while these two companies are in big trouble if they're on their own, together, they'd save billions of dollars, and have a real chance at success. But the battle isn't won yet. Mergers can be tough, and RBC Capital Markets analyst David Bank tells me he thinks it'll be about five years before investors see any real big benefits from the merger. He also points out that in a rocky consumer economy the companies--combined or separate--still face the challenge of adding subscribers, convincing people that this high-end radio service is a must-buy.

Now three of the five FCC commissioners must approve the deal. Though the debate could drag out for another month or so, it seems that eventually, the necessary three will get on board.