Would XM-Sirius merger help consumers?

Karmazin told analysts Tuesday that when Congress gets back from recess, “our plan will be to meet with them and lay out why this merger is a great merger for consumers.”

Despite the hurdles the companies face, some analysts say the deal has more than a fighting chance. A lot depends on just how you define “competition” in the world of satellite radio. The companies are expected to argue that, with iPods offering drivers thousands of songs and podcasts, new technologies like HD Radio, and emerging services like wireless Internet access coming soon in cars, the world has changed since the original rules required two separate satellite radio channels.

“They’re going to say that since 1997, people listen to iPods, people can hear music in more ways than just on the radio or on satellite radio," said Josh Kosman, an editor with Deal Reporter. “And they're going to say because of that, this merger of equals or this combination is still in the public interest. “

That argument may be strong enough to win regulators’ approval, according to some analysts, including Blair Levin, chief of staff at the FCC in when the two satellite radio licenses were awarded in 1997 and now an analyst with Stifel Nicolaus, a brokerage firm based in St. Louis.

“There's a whole bunch of products and services that are out there that weren't out there before,” he said.

Still, the main purpose of the anti-trust review process is to guard against giving one provider too much power to raise prices. On that score, the companies’ conference call with investors may be instructive. For starters, Karmazin told the group that “we believe that the $26 (a month) the consumer currently pays to be able to get content from other services (has) the opportunity to be vastly improved.” But few subscribers currently buy both services; the real question is whether the new company would offer services priced at or below the current $13 monthly fee.

Karmazin also told analysts that they could expect the merged companies’ revenue per customer to go up in the future, based in part “ on what the customer is willing to pay.” Prices have been flat so far, he said, not necessarily because of competition from XM, but because of the importance of continuing to attract new customers.

Ending competition between Sirius and XM could also help the companies boost profits — without raising subscriber fees. Automakers would no longer have two services competing to offer the biggest incentives to install new radios. But it’s not clear whether that added cost of those lower incentives would be borne by the automakers or passed along to car buyers. Sports leagues and on-air personalities would also no longer have two satellite services bidding for exclusive programming rights.

Tuesday’s briefing for analysts also provided a hint of another way XM and Sirius could generate more revenues per subscriber: by adding more advertising. Though the services offer commercial free music, they do include ads on some talk channels. In laying out the benefits to investors, Karmazin told analysts “the advertising line is going to contribute significantly in the future” toward revenue per subscriber.

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