WASHINGTON, DC — Before a proposed merger between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. can be finalized, the union will first be subject to review by the Federal Communications Commission – a review that some analysts say is likely to result in rejection.Referring to a Satellite Licensing Order (SLO) adopted by the FCC in 1997, the year in which the Commission originally issued satellite licensed to XM and Sirius, FCC Chairman Kevin Martin said in a written statement that “the hurdle here, however, would be as high as the commission originally prohibited one company from holding the only two satellite radio licenses.”

Under the terms of the SLO, the FCC prohibits any one entity from owning two satellite licenses, in furtherance of encouraging competition in the market. With respect to the transfer of licenses, the SLO states that the “prohibition on transfer of control will help assure sufficient continuing competition in the provision of satellite service.”

Martin indicated, however, that the FCC might consider lifting the prohibition, although he emphasized in his written statement that “the companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices.”

In a press conference last December, Martin noted to reporters that the FCC had the only proposed merger similar to the Sirius-XM merger that had been considered by the Commission was the attempted merger of satellite television companies DirecTV and EchoStar Communications Corp. in 2002, a merger that ultimately was rejected by the FCC.

In rejecting the DirecTV-EchoStar merger, the FCC argued that to do otherwise would reduce competition in the paid television sector of most rural markets from two companies to one, and also reduce such competition from three companies to two in many larger markets.

According to Law.com, the DirecTV-EchoStar merger stands as the only major transaction the FCC has rejected to date during the Bush Administration.

Martin has been careful with his public statements on the merger, not closing the door a possible union of Sirius and XM, but not downplaying the serious impediments such a deal will face within its FCC review, either.

“The only other things I have said about this publicly is that the analogous situation when you’re looking at satellite radio is looking at what happens to satellite TV side,” Martin said in his written statement. “When DirecTV or EchoStar merged it was before News Corp. got involved. The commission argued that the merger of those two would not be in the public interest.”

Some analysts suggest that the emergence of phone companies into markets related to satellite and wireless music technology could aid the chances of the Sirius-XM merger being approved.

“We think that as new forms of competition, such as wireless music and video services, penetrate the market, the likelihood of approval rises,” wrote Blair Levin of the securities brokerage and analytical firm Stifel, Nicolaus & Co., in a report issued earlier this month.

Levin, who is also a former chief of staff for the FCC, stated that he believes the merger would be approved by the U.S. Department of Justice, and approval from the DOJ would go a long way in helping the merger clear the FCC review.

“If DOJ cleared it, we think it would be difficult for the FCC to reject it,” Levin wrote in his report, adding that the DOJ “could well ask for conditions on local content, indecency and pricing.”

Others aren’t so sure, including the National Association of Broadcasters (NAB).

“Given the government’s history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius,” said NAB executive vice president Dennis Wharton. “It bears mentioning that regulators summarily rejected a similar monopoly merger of the nation’s only two satellite television companies.”

William Kidd of Wedbush Morgan Securities echoed Wharton’s skepticism and noting that the NAB’s vocal opposition to the merger is one reason why he thinks the merger will not go through.

“Regulatory approval is the obvious challenge,” said Kidd, according to the Hollywood Reporter. “We think the likelihood of approval is below 50-percent.”

Kidd added that he expects the NAB to ratchet up its campaign opposing the merger. Wharton has already termed the merger an “anti-consumer proposal” and stated that FCC approval would be tantamount to a “government bailout to avoid competing in the marketplace.”

“Traditional radio is already struggling against two satellite radio powers,” noted Kidd. “Surely, the thought of battling one satellite radio superpower must be daunting.”

Sirius CEO Mel Karmazin, who would under the proposed deal between XM and Sirius retain his position as CEO of the new entity formed by the merger, said he’s not surprised the FCC review is of great concern for investors, but expressed confidence that the merger will go through.

“I’m sure the regulatory approval process is on everybody’s mind,” Karmazin said during a conference call with analysts Tuesday, according to the Hollywood Reporter. “We believe there’s a solid basis for approval and are committed to work with regulatory agencies to assure this approval.”