The good news is that the FCC sent detailed questionnaires to XM Satellite (XMSR) and Sirius (SIRI) about their businesses in contemplation of deciding the fate of the merger of the two companies. The bad news is that the agency sent the questionnaires.

The Wall Street Journal says the documents could "provide an indication of areas where the FCC could ask for concessions as part of any satellite-radio merger approval." The answers from them could also be used to cause the agency to decide that the merger is not in the public interest.

XMSR and SIRI may not be in a financial position to make many concessions. Their recent quarterly earnings show that subscriber growth is slowing and that the billion dollar plus debt loads at each company are not getting any smaller.

The two companies will have to run redundant systems for some period. An XM signal cannot be picked up by a car running the Sirius radio now. Operating both infrastructures will be expensive. Big stars like Howard Stern may want more money to be on both services. And, it is still not clear how the contracts between the two companies and auto manufacturers will sort out.

In other words, a merger does not solve as many problems as was first hoped.

Concessions will certainly make matters worse. If the FCC wants to cap pricing or asks the two companies to offer lower prices for people who want fewer channels, it may break the revenue model of satellite radio, which is one fee for 150 channels. Selling twenty channels for a dollar a month is unlikely to be a good business.

Of course, the FCC could look at the answers to its questions and simply say that the merger creates a monopoly. It does, but a monopoly of one new company that is so weak that it may not survive. And, if the merger is turned down, satellite radio won’t be able to support itself until it breaks even. Refinancing debt in the current credit environment is not possible.

Douglas A. McIntyre

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