• by Erik Sass  @eriksass1, March 7, 2008

The proposed merger between Sirius Satellite Radio and XM Satellite Radio faces a "high hurdle," according to Kevin Martin, the chairman of the Federal Communications Commission, which must approve the deal. The remarks, first reported by Radio & Records, seem to cast further doubt on the fate of the merger proposal, especially as Martin questioned one of the basic arguments in support of the deal.

The satcasters' FCC licenses, issued in 1997, explicitly forbid them from ever merging. However, the satcasters now say they should be allowed to merge because they face new, unexpected competition from digital devices and services that didn't exist when they were first chartered.

But on Tuesday, Martin rejected the pro-merger argument, saying the relevant arena for their business, or "market definition," could still be considered to include just satellite radio--not the new arrivals, like MP3s, iTunes, etc. If that's the case, it will be difficult--if not impossible--to counter allegations that the deal is, in fact, a merger to monopoly, as argued by opponents like the National Association of Broadcasters, which represents terrestrial radio stations.

(Separately, the HD Digital Radio Alliance has petitioned the FCC to demand that as a condition for the merger proceeding, satellite radio include a chip that allows them to receive terrestrial digital signals. The Alliance also demanded that the satcasters cancel their exclusive deals with automakers, which now cover virtually the entire U.S. market.)

On the positive side, last year the satcasters' argument for a more inclusive market definition got a boost from the dismissal of an unrelated antitrust case brought by the Federal Trade Commission. The antitrust suit attempted to block the merger of Whole Foods Market and Wild Oats Markets. However, a federal judge dismissed the FTC's claim, citing its too-narrow definition of the market where the deal is supposed to take place.

Essentially, the judge ruled that their merger would not constitute a monopolistic action in the larger context of the supermarket and grocery store industry. The FTC had argued that the relevant market definition was a subset of that industry: the "premium and natural organic food markets."

Martin added another positive note at this week's press conference, saying he still gives satcasters high marks for the a la carte subscription service they proposed as a measure to increase consumer choice--if the merger is allowed to proceed. Increasing consumer choice in media delivery is one of Martin's favorite issues, with broad application beyond satellite radio--including, for example, a la carte proposals for cable TV.