Satellite Radio: Cold Feet or Hot Hands?

Sirius (Nasdaq: SIRI) and XM (Nasdaq: XMSR) are still feeling the love. They just don't want their marriage to be prearranged.

It's been nearly 15 months since the merger of the two satellite radio providers was first proposed. The union received the Justice Department's blessing two months ago, but cheers turned into jeers when the FCC didn't promptly jump in with its own approval. March feels so far away right now. The longer the government vetting takes, the greater the likelihood that regulators will insist on certain concessions from satellite radio.

Deals are common in gray-area mergers. Media conglomerates that come together sometimes have to sell certain assets, like conflicting radio or television stations. It's unclear what kind of hoops -- if any -- Sirius and XM will have to jump through to wrap up their interminably long courtship. But it is clear that Sirius is willing to bend only so far to make the deal happen.

"The company won't agree to a set of conditions that's going to adversely impact, and would not be to the benefit of, our current subscribers, our future subscribers, and our shareholders," Sirius CFO David Frear said at a communications conference Tuesday.

It's hard to imagine the kind of concession that would make Frear's skin crawl.

Congressman Gene Green (D-Texas) suggested two months ago that the combined company should give up half of its spectrum, but that is ridiculous. Sirius and XM wouldn't mind the huge windfall in auctioning off the spectrum, but what would that mean for the nearly 18 million current subscribers? Today's receivers don't offer interoperability. XM subscribers can't simply shed half of their channels and receive the half that sticks around at Sirius.

I said "Uncle" last summer
Sirius and XM have already conceded plenty. They have promised lower-priced plans a year after the merger's completion. They have also left five quarters of synergy on the table, as regulatory delays ate into the financial performances of both companies.

Both companies have also scaled back on their marketing during the lull between nuptials. There is no point in rolling out a massive advertising campaign when the message of the merged company will be different. It's also not the best idea to actively promote yourself when you're still trying to send a modest message in winning regulatory approval.

Give until it hurts
The only possible request from the FCC may be a strict timeline for the rollout of receivers that can receive both XM and Sirius, but that isn't entirely in providers' hands.

Either way, something appears to be happening. Frear wouldn't be discussing the possibility of unacceptable conditions at an open conference unless there were credible whispers of more deals to be brokered.

After nearly 15 months of bending, it'll take a lot from the FCC to break Sirius and XM. The FCC can't win at this point. If it appeases terrestrial-radio heavies like Clear Channel (NYSE: CCU) and CBS (NYSE: CBS) by killing the deal, 18 million satellite radio subscribers will wonder why they're not getting the content-widening deal they covet. If the FCC sides with satellite radio, critics will wonder why it took so long.

You've deliberated long enough, FCC. Speak now, or forever hold your peace.

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