XM/Sirius Satellite Radio Merger Opposition Intensifies

]The FCC pleading cycle has, not surprisingly, intensified the war-of-words between opponents and supporters of the XM Satellite Radio (XMSR) - SIRIUS Satellite Radio (SIRI) merger, and generated the obligatory renewed interest among analysts and the general public.

Yet, despite the hype and hyperbole of the last two weeks, the overall landscape and chances of a successful completion have not changed at all. The massive publicity currently in progress has been expected from the outset, as has the up and down cycles this deal will experience over the coming months. The current cycle is clearly on the positive side with the participation of former FCC Commissioner Furchtgott-Roth's in the form of a company-sponsored study in favor of the merger. This, in addition to several small consumer groups and individual citizens providing an influx of comments in support of the merger has created a very palpable sense of confidence in the pro-merger camp.

With respect to Furchtgott-Roth, it can not be denied that this former Commissioner has never been shy about his opinions with respect to government regulation of major corporate actions. There are no shortage of speeches and reports by Mr. Furchtgott-Roth which clearly establish his position on the FCC's role in merger reviews and corporate oversight. His views were summed up quite adequately in this 1999 presentation to the House of Representatives regarding license transfer reviews:

It is no secret that I have been, and remain, deeply concerned about the novel procedures currently being employed by the FCC in license transfer proceedings. My concerns arise out of the legal problems with the processes and standards -- or more precisely, the lack thereof -- that the Commission uses to evaluate applications for the transfer of licenses. The aggregate effect of these problems, described in detail below, is to create an administrative scheme that undermines the principles of fundamental fairness and procedural due process, the hallmarks of the APA.

By using the license transfer provisions of the Communications Act to assert jurisdiction over the entire merger of two companies that happen to be the transferee and transferor of licenses, the Commission greatly expands its organic authority. Certainly, in the context of a merger, license transfers occur as a result of the merger, but the Commission should not use this causative fact to bootstrap itself into jurisdiction over the merger. If control of licenses were to be transferred 'as a result of' a licensee's bankruptcy, would the Commission assert jurisdiction to review the legal propriety of the declaration of bankruptcy? That would be preposterous, as that is a job for a bankruptcy court.

For the reasons discussed above, I believe that the Commission's failure to establish, pursuant to notice and comment, public and intelligible principles to channel the exercise of authority delegated by Congress raises serious questions under the APA and the Constitution. In particular, the use of extraordinary processes in individual, high-profile cases threatens to undermine both the procedural and substantive rights of regulated entities. I further believe that the Commission's practice of attaching 'conditions' to license transfers that lack a basis in the Communications Act or extant Commission rules, or that purport to enforce the judgments of other federal agencies, is also legally troublesome.

As an 'independent' agency, composed of unelected officials who have no direct accountability to the American public, I believe that we should proceed with heightened reserve when exercising discretionary functions. If we so proceeded, we could better stay within the bounds of our statutory authority, mitigate the potential for arbitrary decision making, safeguard the rights of judicial review, provide regulated entities with fair notice of the procedural and substantive rules governing their applications, avoid the appearance of impartiality, and steer clear of the non-delegation doctrine. In short, we could better serve the rule of law.

And this excerpt from his October 2001 speech before the American Enterprise Institute, Mr. Furchtgott-Roth essentially rejects one of the FCC's primary purposes:

The FCC has no concept of how markets work or how property rights work. There are companies that come to the commission with new technologies all the time, and all they need is spectrum. However, they must play the game of 'Mother, may I?' and spend time and millions of dollars to persuade the commission their technology is viable. The fact is, most innovations never get developed because of this. You have to wonder why any company would bother to go through this.

In short, it would have been a revelation had Furchtgott-Roth come out against the merger. His support is literally a non-event, as his opinions on transactions of this nature have been widely known for more than a decade. Nevertheless, his inclusion into the FCC review process in this merger can not be discounted altogether. But it should be viewed in the proper context, which does not appear to be happening in mainstream and "blogger" outlets.

In response to Furchtgott-Roth, and presumably to the wave of support at this juncture, the National Association of Broadcasters commissioned this report from Philip M. Napoli to directly contradict Furchtgott-Roth's claims. The details of this report (as well as Furchtgott-Roth's) are immaterial as it is obviously up to the FCC to determine the merits, or lack thereof, of the arguments, but it is also significant in that it represents the 'neutralization' campaign that each side will continue to pursue throughout the FCC process. Again, this activity has been fully anticipated from day one of this transaction.

The bottom line has not changed for the FCC, or DOJ, reviews in light of the recent developments. In fact, there truly are no developments as far as the critical reviews are concerned. The FCC has given absolutely no indication of its direction and will presumably go into a silent period after the first pleading cycle ends later this month, or it may launch a second pleading cycle which would not be surprising in the least. If the FCC review 'clock' is stopped in the near future, it will most likely occur without notice and without information regarding its re-start. The continued high volume of ex parte filings, particularly the high profile reports mentioned above, only serve to increase the odds that the review clock with be stopped at some point. But this too is by no means certain.

For the DOJ's part, no relevant information should be expected from the regulator any time soon. It has been suggested from various analysts that a DOJ decision, or at least a leak, could surface before the end of August. This does not seem likely given the nature of the transaction and the pace of the FCC review. It is more probable that nothing will come out of the DOJ until well into the fall of this year, at the earliest.

It will be stated again at this time that the chances of this merger being successfully complete are roughly 33%, regardless of the current perceived momentum in support of the deal. The facts surrounding the transaction have not been altered in the slightest degree, therefore there is no reason to suggest that the deal's chances have improved at this time.

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