Karmazin right to eye XM play

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Sirius chief Mel Karmazin says "we'd love to buy" XM. A merger of the growing but money-losing satellite radio ventures makes sense, for it would create a stronger player with the scale to battle emerging competitors.

XM and Sirius launched in 2001 and 2002, respectively, and have been dueling ever since. But they face a bigger threat from a host of alternative technologies: Apple's iPod, wireless devices, digital radio.

Key challenge
IPod (and the growing fleet of iPod-ready cars) is a key challenge. Apple introduced iPod in October 2001, one month before XM's national launch. By the end of this year's first quarter, Apple had sold more than 50 million iPods, nearly five times the combined subscriber count of XM and Sirius. (The iPod number is worldwide; the U.S. accounts for somewhere below half of Apple sales.)

There's a precedent for a merger-or almost merger-of satellite services: EchoStar Communications (Dish Network) struck a deal in 2001 to buy bigger rival DirecTV. At the time, the two had 16.7 million subscribers.

Working out the obstacles
The Federal Communications Commission and Justice Department quashed that deal, saying it would reduce service choices for millions of households from three to two-cable or DirecTV/Dish-and create a monopoly in areas that had no cable. DirecTV (now part-owned by News Corp.) and Dish continue to thrive; their total subscriber base has grown to 28 million.

Mr. Karmazin cautions that a Sirius/XM merger would face price and regulatory issues. Price could be worked out. A merger might have been a hard sell when shares were soaring, but the two stocks have fallen sharply this year amid Wall Street skepticism; investors might be more open to a deal as the best solution. On the regulatory front, this isn't satellite TV; a satellite-radio monopoly would face competition that couldn't have been imagined when the two firms won an auction for FCC licenses in 1997.

Under terms of those licenses, Sirius and XM have been working since 2000 to create standards for a radio capable of receiving either service. That work is nearly done, so the timing could be right for Sirius and XM to connect.
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