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WASHINGTON (AP)–Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio
Holdings Inc. (XMSR) are pegging regulatory approval of their merger to giving
consumers more control over the specific channels they buy.

There’s one catch: Customers would need new radios at up to $200 a pop.

The companies’ combined 17 million subscribers have radios that aren’t
interoperable. Radios that can receive signals from both companies likely
wouldn’t be available for at least a year after the merger - and a year or two
after that for customers who get satellite radios via new car purchases.

The Justice Department on Monday green-lighted Sirius’ acquisition of XM and the
companies are pitching the benefits of “a la carte” programming to the Federal
Communications Commission, which must also sign off on the deal.

The companies would offer “the first-ever a la carte options in subscription
media,” they said in a statement late Monday.

XM and Sirius obtain most customers through auto makers, which offer the radios
and the service in new cars. But car makers require lead times of several years
to update dashboards with new products and so cars with interoperable radios
likely wouldn’t be on dealer lots for up to three years, predicts Jim Goss, a
media analyst at Barrington Research.

Thomas Barnett, assistant attorney general heading the Justice Department’s
antitrust division, said Wednesday that agency officials concluded interoperable
radios would take two to three years to be available from auto makers.

FCC Chairman Kevin Martin has expressed support for requiring cable companies to
provide “a la carte” options and may want to set a media precedent by
conditioning approval of the XM-Sirius deal on offering customers the right to
choose which channels they receive, analysts said.

Still, the FCC is likely to approve the transaction because the agency has “never
to our knowledge” gone against Justice, says Kit Spring, an analyst at Stifel
Nicolaus.

After Justice cleared the deal this week, both companies said “no existing radio
will be made obsolete by the merger.” Subscribers would be able to receive select
programming from the provider they don’t currently subscribe to on existing
radios, the companies said.

They haven’t specified whether popular programming, such as Sirius’ Howard Stern
or XM’s major league baseball, would be part of the “select programming”
available.

XM and Sirius say they plan to offer eight options that combine the companies’
offerings, such as a “mostly music” package with 65 channels, for $9.99 a month -
less than the current flat rate of $12.95. Six of those eight options will be
available on current radios.

The two “a la carte” packages that promise the most flexibility, however, will
require new radios.

The cheapest “a la carte” option would offer 50 channels for $6.99 a month with
additional channels costing 25 cents each, though premium choices, such as the
NFL channel, would cost $3 or $6 each per month. Another “a la carte” plan would
offer 100 channels for $14.99 a month.

Analysts expect few current subscribers to pay for the new receivers. Current
satellite radios cost between $40 and $200.

Perhaps 5% to 10% of current subscribers “might go through the trouble” of buying
new radios for the “a la carte” option, Stifel Nicolaus’ Spring wrote in a recent
note to clients.

Spokesmen for Sirius and XM declined to comment beyond their statement because
merger approval is still pending before the FCC.

When the two companies made their debut a decade ago, the FCC approved their
launch with a requirement that they design interoperable radios, which the
companies say they have done. But until now there was little incentive to invest
in making the design commercially available.

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