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Satellite radio mega-merger to go ahead

  • Story Highlights
  • Merger cleared for XM Satellite Radio and Sirius Satellite Radio
  • The $5 billion deal will create an industry giant
  • The growing industry now has more than 14 million subscribers
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WASHINGTON (CNN) -- Justice Department antitrust lawyers Monday approved the proposed merger of rivals XM Satellite Radio and Sirius Satellite Radio, a $5 billion deal that will create a giant in a growing industry that now has more than 14 million subscribers.

"The evidence does not demonstrate the proposed merger of XM and Sirius is likely to substantially lessen competition, and the transaction therefore is not likely to harm consumers," a Justice Department statement said.

Assistant Attorney General Thomas Barnett, who heads the department's Antitrust Division, said users typically look to the satellite-radio providers for different programs.

"Our examination showed that subscribers might want XM to listen to Major League Baseball or Sirius to listen to Howard Stern," Barnett told reporters in an afternoon conference call following the announcement. "They don't generally view the other as an acceptable alternative."

In addition, he said subscribers may see alternatives in other technologies, such as digital audio players or HD radio. He said there would be no conditions placed on the combined company.

The Federal Communications Commission must also approve the deal, and could place conditions of its own on the merger.

The deal has been strongly opposed by the nation's over-the-air broadcasters and consumer groups who argued it could lead to sharply higher subscription costs. The regulators said they found no basis to support that argument.

After a year of study and analysis, the proposed acquisition of XM by Sirius was determined by regulators at the Justice Department to be part of a broad and rapidly expanding competitive field for information and entertainment.

"The likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term," the Justice Department said.

The deal is expected to provide provide listeners with a wide variety of programming including sports, news, and high-profile entertainers like Stern, the New York-based "shock jock."

The satellite broadcasting rivals made the surprise announcement of their proposed merger in February 2007. Under the proposal, XM shareholders would get 4.6 shares of Sirius stock for each share of XM they own.

Tiered payment subscription packages start at $12.95 per month. Both companies have said they would be willing to offer a so-called "a la carte" price plan, in which consumers could pick packages ranging from $6.99 a month to $16.99 a month.

The best combined package would cost less than the $25.90 a month that a consumer would currently have to pay to subscribe to both services, the companies say.

In a statement Monday, XM reiterated that radios owned by its current subscribers would not need to be replaced in order to continue receiving programming. But one analyst said it will be a while before people will be able to receive the full programming from both companies over one device.

"Content for both companies will not be immediately available." said Pacific Crest Securities analyst David Niederman. "But in the future, there will be a greater wealth of content to choose from."

Barnett said the year-long investigation took "longer than we typically take," but he said there were many "significant issues" that had to be explored.

"In the end, we found we should not challenge the merger, and have now closed our investigation," he said.

Under questioning from reporters, Barnett said there were wide areas in which the two satellite radio entities did not compete. He said each service required purchase of its own equipment, and regulators found that once the selection was made consumers did not change services.

"People just don't do that. There's very little switching," he said.

The assistant attorney general did acknowledge that he found some competition initially between the two in seeking customers among new car buyers. But Barnett said that had largely passed as the services entered into contracts with automakers to provide their service and equipment in new vehicles.

Barnett said while it is true that some competition would be eliminated in mass-market retail stores, "We were unable to to establish there's a market limited to these two services, and again consumers bought them for different reasons," he said. E-mail to a friend E-mail to a friend

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