March 24, 2008: 5:01 PM EDT
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Justice Department approves XM-Sirius deal

The FCC is also likely to allow the merger of the satellite radio services.

By Scott Moritz, writer

(Fortune) -- The merger of satellite radio services XM and Sirius, an improbable deal that stalled in Washington for a year, is now facing impending approval.

The Justice Department on Monday gave its blessing to the union, sending a strong signal that final approval for the merger between XM (XMSR) and Sirius (SIRI) is coming soon from the Federal Communications Commission.

Passing Justice's antitrust review was considered the most difficult hurdle in the merger process since the tie-up combines the nation's only two satellite radio players. However, the agency concluded that satellite radio competes with conventional radio and digital devices like Apple's (AAPL, Fortune 500) iPod. The remaining question is what conditions will the FCC place on the two pay-radio shops to make the merger happen.

One of the biggest potential complaints would have been from the automakers that install the satellite radios in new cars as part of a partnership with XM and Sirius. But Justice says that the long-range agreements would not have been affected by the reduction in competition.

"Without a victim, it is difficult to bring a case," says former Justice Department attorney Steve Axinn of Axinn, Veltrop & Harkrider.

The deal is a major victory for Sirius chief Mel Karmazin, who ignored the original FCC license rules that forbade the two companies from ever joining forces. Karmazin was quick to propose programming packages that combined stations from both services, a gesture that helped regulators decide that the merger wouldn't result in increased prices and fewer choices.

The merger was dead in the water at various points in the 57-week review by Justice. And the FCC was facing a one-year anniversary of its review come Sunday.

One possible negotiation point that may have helped break the stalemate was pointed out by Stifel Nicolaus analyst and former regulator Blair Levin, who predicted that the FCC may force the XM and Sirius to rent a few channels on their network to other companies. Leasing access on a network is an approach that failed miserably when imposed on phone companies, but reserving channels for outside programming is a model that has been adopted by cable providers.

The FCC's approval will probably also impose some rules about price caps that would seek to hold subscription costs down for a few years.

Merger watchers say that such combinations' chances for approval were coming to a close with the end of the current administration. The pro-business regulatory climate may change with a new administration, and pairings that appear monopolistic by definition, may not have fare so well in the future. To top of page

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