Bank of America analyst Jonathan Jacoby wrote in a research note today that the "Achilles heel for sat radio" could be the existence of a regulation the requires two satellite radio operators. This could effectively bring a merger between XM and Sirius to a regulatory halt.

Under the FCC's rules auctioning satellite raido's DARS licenses, there are several "safeguards" in place, and one especially where the FCC specifically addresses transfers of the licenses. Here's what it reads (emphasis added):

Transfers. We note that DARS licensees, like other satellite licensees, will be subject to rule 25.118, which prohibits transfers or assignments of licenses except upon application to the Commission and upon a finding by the Commission that the public interest would be served thereby. Even after DARS licenses are granted, one licensee will not be permitted to acquire control of the other remaining satellite DARS license. This prohibition on transfer of control will help assure sufficient continuing competition in the provision of satellite DARS service.

Jacoby notes that the FCC may not be able to simply waive this procedural hurdle - it would have to be formally changed. So not only would the market that satellite radio competes in need to be redefined (is it competitive to terrestrial radio AND digital media like portable music players?), but also the FCC's own DARS license would need to be redefined.

As RBC Capital Markets analyst David Bank points out in a report... the clock is ticking. Bank believes that if a Democratic (or potentially an even less receptive Republican) helmed administration comes into office, it might "offer much greater resistance than the current regulatory framework."

The clock is definitely ticking. Jacoby believes that a merger would have to be announced in the next 4-8 weeks if there's a "reasonable chance of clearing regulatory hurdles" before the 2008 elections. Youch.

A new year, a new Congress, a new set of challenges. Only days after the 110th Congress was sworn in, a new anti-satellite radio bill is hitting the Senate that reintroduces the basic concepts of The Perform Act.

This time it's championed by Senator Dianne Feinstein (D-CA), along with Senators Lindsey Graham (R-SC), Joseph Biden (D-DE) and Lamar Alexander (R-TN). Thankfully though, Senator Feinstein seems to be without the support of Chair of the Senate Judiciary Committee, Patrick Leahy (D-VT).

The bill would set new rules for the satellite radio medium - creating new rates and content standards supposedly similar to those of Internet radio - and it's unsurprisingly supported by the oh-so-popular RIAA. The RIAA's Chairman/CEO Mitch Bainwol stated:

"This early play by Sen. Feinstein and her colleagues should leave no doubt that policymakers continue to view parity among digital music services as a top priority. And a top priority it should be. Under the current system, satellite radio has been allowed to morph into a digital distribution service – shorting the creators of music, displacing licensed sales and threatening the integrity of the digital music marketplace in the process. We love satellite radio. But this is simply no way to do business.  It’s in everyone’s best interest to ensure a marketplace where fair competition can thrive.”

 Here we go again.

[via FMQB]