By Scott Moritz

Clearing the way to merger approval, XM and Sirius agreed to pay a $19 million fine for violating radio transmission rules.

The move is aimed to end a 2006 inquiry by the Federal Communications Commission into radios that broadcast some signals in adjacent FM radio waves. The FCC stepped in when satellite radio transmissions interfered with conventional radio channels.

The two companies agreed to pay the fine - XM will pay $17 million and Sirius will hand over $2 million – and correct their radio and broadcast transmission problems.

The settlement is expected to pave the way for a 3-2 FCC approval. As the review entered its 18th month, it became clear that the agency was split along political party lines. The swing vote on the deal is Commissioner Deborah Tate, a Republican appointee, who is reportedly close to filing her vote in favor of the deal.

The two FCC Democrats, Jonathan Adelstein and Michael Copps, oppose the combination. Copps Monday gave an unconditional no vote on the deal and on Wednesday, Adelstein voted no after he made no progress getting the companies to agree to conditions like a six-year service price freeze and mandatory public access to a quarter of the combined companies’ airwaves.

Sirius and XM filed for a merger review with regulators in February 2007.  Just over a year later, the Justice Department approved the deal, saying that conventional radio and MP3 players like Apple’s (AAPL) iPods were sufficient competition to keep Sirius from setting high prices.

The FCC was a more difficult hurdle, in part because the agency wrote the original satellite radio charter, which specified that the two radio wave licenses should be in separate hands to foster competition.

In an effort to ease the concerns that the satellite duo would use its monopoly status to gouge consumers, the companies proposed new price plans like 50-channel and 100-channel a la carte  offerings that would cost $13 and $15 a month, prices that would stay static for three years. XM and Sirius currently charge $12.95 a month.

The companies also promised to set aside 4%, or 12 channels, for outside access like public service and minority programming.

But as the merger approval process dragged on for nearly a year and a half, the two companies saw growth cool and losses mount. And as new car sales fell, the satellite radio sector suffered as well. Investors worried about the perpetual need for new financing and the prospects of recapitalization pushed the stocks down. XM shares are down 23% from the pre-merger announcement level and Sirius has dropped 37% in the same period.

Looking ahead, if the companies manage to bring their operations together and find new sources of cash, the new entity will likely take aim at lowering high-priced programming deals like the five-year $500 million contract with Howard Stern, which expires in 2010.

By Michal Lev-Ram

The Federal Communications Commission said Wednesday that Verizon Wireless was the biggest winner in the recently-closed government auction of 700MHz wireless spectrum.

FCC records show that Verizon bid an estimated $9.5 billion for the airwaves, which will become available next year and are well-suited for broadband services.

The company won the majority of large licenses in the coveted C block of the spectrum, in addition to a significant number of smaller licenses in the A and B blocks. A total of five blocks of spectrum were up for bid and the FCC took in $19.6 billion in the auction.

In a statement issued Thursday, Verizon (VZ) said it was “very pleased” with the results of the auction and that the new spectrum would help “grow our business and data revenues.”

AT&T (T) won 227 small licenses and said that, combined with airwaves the company purchased earlier this year from a Providence, Rhode Island-based company called Aloha Partners, its 700MHz spectrum will now cover 200 top U.S. markets.

Google (GOOG), however, didn’t win any licenses. Last year the search giant said it would put up the minimum bid for the C block portion of spectrum to ensure the success of a FCC requirement that the new network be open to any mobile device and not just those sanctioned by the carrier.

But one newcomer did manage to make the cut — satellite television provider Dish Network (DISH) won enough licenses to provide a nearly nationwide network. According to Citigroup analyst Jason Bazinet, it’s likely the company will use the spectrum to roll out a mobile video service.

By Michal Lev-Ram

After nearly eight weeks and 261 rounds of bidding, the government’s spectrum auction finally ended Tuesday.

In January,  the Federal Communications Commission began auctioning off the coveted 700MHz spectrum, which is particularly suited for broadband services and is the last major chunk of nationwide spectrum.  The FCC had hoped to raise at least $10 billion from the auction, but as the last bid came in late Tuesday the total reached $19.6 billion. The auction attracted companies such as Verizon (VZ), Google (GOOG), AT&T (T) and Qualcomm (QCOM).  The spectrum is currently used for television, which will give up the airwaves in 2009 when TV broadcasting goes digital.

As this was a “blind” auction, the bidders’ identities were kept secret.  But the winners won’t be revealed until all five blocks of spectrum up for auction are accounted for — the so-called D block, which was set aside for a nationwide public safety network, failed to raise the minimum price set by the FCC. Analysts say it’s likely the government will separate the D block from the rest of the auction and put it up for sale again  so they can collect the money for the other blocks.