If a merger between XM and Sirius were to happen it would probably happen within the next 4-8 weeks, says Bear Stearns analyst Robert Peck.

The reasoning behind that is that he believes that the deal would need to be wrapped up and approved by the Summer of 2008, before election seasons starts heating up. Since the deal would likely take 12 to 15 months complete, and they have until mid-2008 as a deadline, so that's where we can backtrack to see the rapidly closing window of opportunity.

Peck also mentioned that Sirius and XM will likely review whether or not the deal would pass regulatory approval (something we've all been speculating on as well) and if the likelihood is more than 50%, they could very well make an attempt at the merger.

[via Inside Radio]
(Note: Inside Radio shows 4-6 weeks though Peck actually said 4-8 weeks.)

Even though there has been no official word of a merger between XM and Sirius, that still doesn't stop the speculation to ensue on how it would affect suppliers like Taiwan-based satellite device maker Wistron NeWeb.

According to "market sources" the successful acquisition of XM by Sirius (apparently not a "merger of equals") would allow Wistron NeWeb to gain digital satellite receiver orders at the expense of XM's suppliers in South Korea. That would effectively increase revenues from NT$21-23 billion in 2007, from NT$18.64 billion in 2006.

Brilliant! Now how would a satellite radio merger affect the rainfall accumulation in Grand Fork, ND? Let me run some numbers on that.

The merger of XM Satellite Radio and Sirius Satellite Radio could create the net present value of $6.7 Billion in savings and synergies, according to Bear Stearns analyst Robert Peck.

That figure is taking into account "several simplifying and sometimes conservative assumptions" including no revenue from additional services and the fact that both companies would likely have to operate both satellite systems in the near term to prevent a disruption in service.

Peck believes that the largest contributor of cost savings would come from OEM and programming, while - unlike the NY Post's assumption - content costs would not be reduced upon renewal "as DARS will still compete with other delivery technologies."

Joe Nocera has a nicely written piece in today's New York Times, I Want My Howard Stern and Oprah, that takes on the consumer's viewpoint... and he actually is in favor of a Sirius + XM merger.

It's an intriguing take on the situation, especially since in my half-hour conversation with Mr. Nocera the one quote he chose to include was the following:

"Choice is always a good thing," said Ryan Saghir, who blogs about satellite radio at Orbitcast.com — and opposes the idea of a merger.

It's an appropriate quote though because when I boil down my feelings on the rumored merger, especially from a consumer's standpoint (and one who subscribes to both services), I do believe that choice is always a good thing.

The article goes on to point out that since both services are mutually exclusive from each other, it actually reduces the amount of choice for the customer. This is especially the case when you look at automobile purchases, "nobody chooses a car based on whether it carries XM or Sirius," the article points out.

A significant aspect to highlight, especially for merger-hopefuls, is that former FCC Chairman Reed Hundt (who led the commission when it passed the rule preventing a satellite radio merger) said that he believes that the rule he helped formulate should be repealed. As Mr. Levin put it, "Circumstances have changed." (For those who are trying to keep pulse of what the FCC's underlying stance is on the possible merger, this may be your best indication yet.)

Nocera continues on with the theory that vehicles will eventually be Internet-enabled, at which point satellite radio will be "just another technology fighting to keep pace with the Internet." That with just under 14 million subscribers, satellite radio "has had a modest impact," and will eventually need to compete with "the greatest business model destroyer ever created: the Internet."

What Nocera fails to notice is that satellite radio is growing faster than any other consumer product sans the iPod. A fact that was highlighted in the New York Times only a couple weeks ago. While his piece is refreshingly fair and unbiased, the reality is that auto manufacturers are notoriously slow to adopt personal technologies (e.g., iPod jacks, Bluetooth, etc), and that the realistic expectation Internet in the car is quite a long ways away. It's not necessary for XM and Sirius to merge in order for them to survive.

But back to the issue of choice.

From a consumer's standpoint, it's not a merger that will allow for the increased availability of choice. Mergers never lead to more choice for the consumer (*cough* Comcast *cough*). XM and Sirius are far more than just Howard and Oprah, or NFL and MLB - the majority of what we listen to is music - and the result of a merger would be the inexcusable loss of the unique programming styles from both services. Those who say that the music offerings from XM and Sirius are "essentially the same" have obviously never listened to them.

No, the consumer doesn't need a merger. What the consumer needs is interoperability. Interoperability is something that is also mandated by the FCC, and hopefully soon, it's something that is becoming a reality.

[New York Times (subscription req'd)]

Two days ago FCC Chairman Kevin Martin only stated the obvious - that the current rules prohibit a merger. As a result, both stocks took a nose dive. Then yesterday, Martin again only stated the obvious - that the rules can always be change. As a result, both stocks were sent soaring.

Whether or not a merger would or would not happen (and remember this is all based on speculation), you have to wonder why everyone is so worked up over this issue. More importantly, why are we not concerned about it?

Mark Ramsey puts it perfectly, "A merger is not a business strategy in a time of apparently declining demand, is it? It's a retreat strategy." 

Originally this merger talk seemed to be just a distraction, just hype meant to drive the stocks up. But now the subject seems to be getting more and more pressing. Nearly every analyst is now talking about a possible merger. And there's something concerning to me about this increase sense of urgency.

It's not screaming to me anything about "synergies" and a "stronger position" in the market. It's telling me that both companies screwed up the business model. It's saying that they overestimated the number of potential total subscribers. It's saying that unless they join forces to create an unnatural balance of power, that there's little chance for this media/technology to survive.

And none of that sounds good to me. 

Merger hopefuls who's dreams were dashed yesterday can get excited again. The FCC Chairman Kevin Martin said today that the rules barring a merger between XM and Sirius could be altered, if requested.

Martin, told Reuters on the sidelines of a conference in New York, said he was not aware of any request to change the rule on satellite radio licensing ownership.

[Reuters] 

Gee, who saw this coming? The FCC Chairman today indicated that Sirius and XM Satellite Radio wouldn't win approval of a merger under current U.S. Federal Communications Commission rules.

FCC Chairman Kevin Martin told reporters during a news conference that "there's a prohibition on one entity owning both of those licenses." He is of course talking about the key Safeguard established by the FCC in March 1997 that dictated the policies for the new satellite radio services.

The comments made by Martin sent shares of both companies tumbling. XMSR closed down by 9.86% and Sirius down 6.99% today. And for those who believe that there's still a possibility for the FCC to change the rules, based on satellite radio being considered as part of a "greater" marketplace, Satellite Radio TechWorld has insightfully pointed out that the FCC already considered this under the current rules (emphasis added):

77. Although spectrum constraints limit us to licensing just two satellite DARS systems at this time, our licensing approach nonetheless provides the opportunity for a competitive DARS service. Our goal is to create as competitive a market structure as possible, while permitting each DARS provider to offer sufficient channels for a viable service. In the Notice, we pointed out that "satellite DARS will face competition from terrestrial radio services, CD players in automobiles and homes, and audio services delivered as part of cable and satellite services," and asked whether these delivery media, coupled with fewer than four DARS providers, could ensure an effectively competitive audio services market.

 View the FCC Report & Order (PDF) that details the rules and policies set for satellite radio. It's not necessarily the most exciting read in the world, but at least it will answer any regulatory questions you might have over the possibility of a merger. I'm surprised it's actually taken this long to come out with this.

So with that out of the way, what ever will we talk about now?

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.

Enter the "Consumer Coalition for Competition in Satellite Radio" ("C3SR"), a group of law students at the George Washington University who have formed the organization in protest to XM and Sirius Satellite Radio merger rumors.

"The competitive duopoly in satellite digital radio created by the FCC in 1997 is clearly at risk," according to Chris Reale, one of C3SR's founding members. "If the only two companies operating in the satellite radio industry are permitted to combine, consumers not only will lose their choice, but they will be totally at the mercy of a monopoly provider."

While I agree with his statement and it's admirable that a consumer advocacy group was formed (albeit, based on rumors) I'm not exactly sure what affect they could have. It's the response of the subscribers themselves (would it be a positive or negative response? no one really knows what would happen yet) that would make the most difference.

While the rumored merger announcement from XM and Sirius at NAIAS obviously didn't happen yesterday (did we really think it would?), the topic about a potential merger continues to go on. Now again, remember that there's a huge difference between the two companies wanting a merger, and whether or not it would actually ever happen. Personally, I don't think it would - nor do I feel it's the best outcome from a consumer's standpoint either.

At this week's Citigroup investor conference, we got a brief glimpse as to the FCC's stance on the matter. FCC Chairman Kevin Martin was at the event and was asked about the concept of a merger between Sirius and XM, and he hinted that it would potentially be held up by the FCC.

While the FCC Chairman didn't take a specific stance on the issue, he's quoted by Inside Radio as saying that the closest situation would be the way the Commission handled "what we did on [satellite] television," referring to the blocked merger between DirecTV and Dish Network (Echostar).

This comes as no surprise either. The DirecTV/Echostar merger was blocked because it would create a monopoly in areas where there is no terrestrial signal. There is absolutely no difference with radio, regardless of whether you think satellite radio competes with iPods and Internet content (both of which have video capabilities by the way). So you have to wonder why management from Sirius, and now apparently XM, are still "open" to the idea.

Perhaps with yet another three quarters of negative cash flow ahead of us - and The Street having unrealistically high expectations for subscriber numbers this year - maybe management is looking to keep speculative fires of a merger going, just a little bit longer?