Sirius XM Reply - Fi

REPLY submitted by Sirius XM Radio Inc.

Reply

2012-04-20

This document pretains to SAT-STA-20120320-00054 for Special Temporal Authority on a Satellite Space Stations filing.

IBFS_SATSTA2012032000054_949125

Before the Federal Communications Commission Washington, DC 20554 Application of IBFS Pile Nos. SES—$TA—20120320— 00280, STS—STA—20120320—00281, Liberty Media Corporation SES—8TA—20120320—00282, SAT—STA— 20120320—00053, SAT—STA—20120320— For Consent to Transter of De Racto 00054, SAT—8 TA—20120320—00055, Control of Sitius XMRadio Inc. SAT—STA—20120320—00056 ULS Hile Nos, 0005137812 and oo05137854 Experimental License File Nos. 0011— EX—TU—2012 and 0012—EX—TU—2012 REPLY OF STRIUS XM RADIO INC. Richard E. Wiley Jenaifer Hindin Joshun S, Turncr Wiley Rein LLP 1776 K Street, NW Washington, DC 20006 202.719.7000 Attorneys for Sirius XM Radio Inc April 20, 2012

TABLE OF CONTENTS INTRODUCTION AND SUMMARY... THE COMMISSION SHOULD DISMISS LIBERTY MEDIA‘S APPLICATION BECAUSE TT PROFFERS HYPOTIIETICALS NOT rACTS. an. LIBERTY MEDIA SEEKS TO REWRITE TIE PCCS TEST POR CONTROTL TO FOCUS SOLELYON THE NUMBER OF SHARES OWNED........ A Liberty Media‘s Single—Minded Focus On Minority Ownership Cannot Be Recunciled With Decades Of ECC Precedent B. The Cases Cited By Liberty Media Cannut Support 1ts Reinvention OFThe De Facto Control Analysis. iv. THE AGENCYPROCEDURAL RULES REQUIRE DISMIS LIBERTY MEDIA‘S APPLICATION CONCLUSION

Before the Federal Communications Commission Washington, DC 20554 Application of IBFS File Nos. SES—$TA—20120320— 00280, SES—TA—20120320—00281, Liberty Media Corporation SES—S TA—20120320—00282, SAT—STA— 20120320—00053, SAT—STA—20 120520— For Consent to Transfer of De Facto 00054, SAT—STA—20120320—00055, Contral of Sitius XM Radio Inc. SAT—STA—20120320—00056 ULS File Nos, 0005137812 and 000137854 Exporimental License File Nos. 001 1+ EX—TU—2012 and 0012—EX—TU—2012 REPLY OF SIRIUS XM RADIO INC. Sirins XMRadio Inc. us XMY or "the Company") hercby submitsits Replyto the Opposition filed by Liberty Media Corporation ("Liberty Media") on April 12, 2012 (the "Opposition), ‘The Opposition and Liberty Media‘s underlying Application for Consent to Transfer of De Facto Control (the "Application")" ask the Commission to pre—upprove some future, hypothetical action by whichLiberty Media may(ormay not) seek to take control of Sirius XM‘s FCC lieenses. For the reasons stated herein, and in Sirius XM‘s previously—filed Petition to Dismiss or Deny," the Commission should (ind Liberty Media‘s request contrary to ageneyrules and precedent and dismiss or deny the AppHfcation. Application of Liberty Media Corporation for Consont to Transfer of De Facto Control of Sirins XM Radio Inc. TBFS File Nos. SES—STA—20120320—00280, SBS—8TA—20120320—00281, sizs—sTA—20120320—00282, 8A T—8 TA—20120320—00053, SAT—$TA—20120320—00084, SAT— STA—20120320—00085, SAT—STA—20120320—00056, ULS File Nos. 0005137812 and 0005137854, Experimental License File Nos. 001 1—EX—TU—2012 and 0012—EX—TU+2012 (iled Mar. 20, 2012). * Sirius XM, Petiion to Dismiss or Deny (Filed Mar, 30, 2012)(the "Pesiion).

L INTRODUCTION AND SUMMARY The Opposttion,like the Application. presents no actual facts or cancrete proposalfor Commi fon reviews. It instead presents a laundry list ofpotcntal scenarios that Liberty Media mayuse in the future to take control of Sitius XM. Liberty Media still has not revealed any particular action that it would take ifthe Commission were to process and grant the Application. Indecd, as in the Applicarion, the Opposition is devoid of any plan ut all. This is a fatal deficiency because the Commission does not andshould not review hypothetica! applications. Liberty Media‘s suggestion that a further plan of action is unnecessary because its minority interest is actually controlling—in essence that "40 is the new 50°—ignores consistent ugency dfacto contral precedent focused on Board composition, management and operational decision—making, in addition to stockholding. There is no support for the remarkable proposition that a now unrestricted 40% minority interest,standing alone, is sufficient to bestow control of a public company. An unbroken line of ECC cases holds precisely the opposite: in determining de facto control, the Commission must reviewall ofthe facts ind nosingle factor is ever dispositive. ‘The Sirius XMBoard‘s decision not to support the Application conclusively demonstrates that,absent further action, Liberty Media‘s 40%interest does not amount to de facte conteol. Liberty Media‘s reliance on generalstookholder voting statisties to claim de faeto control based on its 40% ownership is specious. The FCC cannot foretell a change of control based on the uncertain prospect that a minoritystockholder could east the majority of votes in some unscheduled election.. Anysuch future proxycontest by Liberty Media might well berejected by a majorityof Sirius XM‘s stockholders. The enix ofLiberty Media‘s argument for filing the Application now is that the 2009 Investment Agreement no longer restrits it from pursuing control af Sirius XM. The mere

expiration of this restriction does not mean the FCC should grant blanket authority for Liberty Media to take some unspecified future action. Commission precedent uniformlyholds that the ageney can discharge its statutory duty to ensure that a transfer of control servcs the public interest, convenience, and necessity only byreviewing specific faets and the applicant‘s concrete plans to assume control, and not by speculating sbout what might and might not happen. Moreover, procedural infirmities require dismissal of LibertyMedia‘s application. Liberty Media stil has not met its burden to provide good cause to waive the agency‘s basic filing requirements. ‘The Commission promptlyshould dismiss or denythe Application: i. Tik CoMMIsSION S iOULD DISMISS LIBERTY MEDIA® APPLICATION BECAUSE IT PROFFE vPOT Al OT FAC The Commission has made clear that it does not review hiypothetical applications. The agency has repeatedly emphasized that "a showing of de faeto contral must rely on fasts and events that have occurred and not speculation as to what might occur in the future."" w In reviewing any application for transfer of control, the ageney considers the specifi transaction and evidence before it, not the possibility ofsome future action that might result in frnsferting T. See,¢g., American Mobile Radio Corp., MemorandumOpinion and Order, 16 FCC Red. 21431, § 11 (2001) (citing Pox Television Stations, Inc., 10 FCC Red. at 8516—17, 4 160 (1995), affdsub nom., Primasphere Lid. P‘Ship v. ECC, 2003 WLL 472239 .C b. 21, 2003); Mr. Wiltiam 8‘ Paley, CBS Inc, Letter, 1 PCC Red. 1025, 1025—26 (1986) ("Unlike a dejure transfer of contral, where the mere potential to exercise majority vote requires prior Commission consent ind in which an abstention from any activity evidencing control or influence does not excuse noncompliance, finding thata de facto transler of contral has occurred depends largely upona review of the actual aperation of the Hiensco—not upon the potentia) for some hypolhetical future exercise of control.") (°CBS®); see also Una Vee Mas Texas Holdings, 25 ECC Red, 13409, 13414—15 (2010) (analysis of efaeto control based onthe record, not "speculation‘); Foreign Ownership Guidelinesfor FCCCommon Carrier andAeronautical Radio Licenses, Intial Authorization, 19 PCC Red. 22612, 22641 (2004) ("The Commission has proviously determined that a finding thata defato fransfer of control bas occurred depends Jargely upon a review ofthe actual operation of the licensed station — not upon the potential for some hypothetical exercise of control.").

control." This unwavering approach is consistent with. and driven by, the PCC‘s statutory mandate to consider notjust the qualifications ofthe propased licensce, but also the form of control and the nature of the transaction to determine whether the application will serve the public interest, convenience, and necessity." As the applicant, Liberty Media bears the burden of ng all the necessary faets to prove the occurrence of a de facto transfer of control." Neither the pplication not the Opposition imparts any fucts demonstrating how, when, or even {fLiberty Media will move to acquire defaeto control of Siius XM. Instead, Liberty Media catalogs the various ways in which unyentily meight take control of a public corporations including: entering into a merger, aequisition, asset sale,or other business combination; seeking to control the management, Board of Directors or policies; foining a "sroup" with respect to the voting of sccurities; calling a meeting of stockholders; intiating a stockholder proposal; * LerainJournal Co.v PCC, 351 F24 824, 830 (D.C. Cir. 1965) (*[WIhethera proposed transaction would result in a transier of contral . should be resolved dbringing the complete facts ofthe proposed transaction to the Commission‘s attention for a ruling in advance ofany consummation ofthe transaction.") (emphasis added); see also Perition ofFurner Broadcasting System, 101 FCC 2d $43, 849 (1985) (‘an option ... does not enter into transfer—of—control determinations untl the optionis exercised.") 30 See 47 U.S.C. § 310(4)(providing that no license shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, direetly orindirecily.. . except upon applicationto the Commission and upon finding by the Commission thatthe public interest, convenience, and necessity will be served thereby"); see generally EWEnters., Inc. v. FCC, 753 F.2d 1132, 1139 (D.C. Cir. 1985) ("The Commission ... relies heavilyon the completeness and accuracyofthe submissions made to i. Thus, applicants have an affirmative duty to inform the Commission ofthe facts it needs in order to fulill itsstatitory mandate.") (intemal citations and punctuationomitted). * See, eg., ApplicationsFiledfor the Transfer ofContral ofInsight Communications Company, Inc. to Time Warner Cable Inc., Memorandum Opinion and Order, 27 FCC Red. 497, 500(2012) (*tnsight Communications") (*Applicants bear the burden of profof]" in a license transfer upplication}; Applications ofCNCA Aequisition Corp.; For Commission Consent to a Transfer of Control ofAmerican Cellular Network Corp., 3 TCC 6088 9 24 (1988) (stating that "the primary interest in the prosecution of these applications lies with [the applicant]")

soliciting proxies; or purchasing additional shares,". But Liberty Mcdia does not indicate an intention to take any ofthese actions. To the contrary, Liberty Media‘s Schedule 13D filing with the U.S. Securities and Exchanige Commission reports no suchplans." Because Liberty Media has not filed an amendment to the Schedule 13D, Liberty Media presumably still doos not have any present intention of exercising control." Liberty Media contends that approval ofthe Application would be appropriate now simply because the expiration of the Investment Agreement restrictions means that it "can take actions that ‘could ultimately result in a transfer of control."""" As Sirius XM explained in the Petition, potentialsteps are not the same thing as real aetions." Just because Liberty Medi is no longer contractually orbidden from attempting to take contal of Sirius XM docs not mean that f See Opposition at 8—9. * See Liberty Media, General Statement of Acquisition of Beneficial Ownership (Schedule 13D) (Sept, 23, 2011) . [Liberty Media] has no present plans or proposals that relate to on would result in: (a) The acquisition by any person ofadditional securites of [Sirius XMJ, or the disposition osccurities of [Sirius XMJ: (b) An extraordinary corporate transaction, such as a weee, reremienen on uies nnaione Iacis tldlor ale ondn antndiares (uh a se or transfer of‘a material amount of assels of [Sirius XM] or of any ofis subsidiaries;(d) Any change in the present board ofdirectors or management of [Sirius XM, including any plans or propasals to change the number or term of directors orto fill any existing vacancies on the board; (€) Any material change in the presont capitalization or dividend policy of[Sirius XMJ; (D Anyother material change in [Sitins XM]‘s business or corporate structure; (g) Changges in [Sirius XMJ‘s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition ofcontrol of [Sirius XM] byanyperson; (h) A class of securites of [Sirius XM| being delisted from a national securites exchange or ccasing to be authorized to be quoted in an inter—dealer quotation system of a registered national securiies association; () A class ofequitysecurities of [Sitius XMJ becoming eligible for termination ofregistration purstantto Section 12(@)(4) of the Act; o() Anyaction similar to anyof thase enumerated in Htems (a)—0) above."). * Rule 13¢—2 ofthe Securities Exchange Act requires a 13D filer to amendits current Schedule 13D should a material change occur in the facts set forth in is filing " Oppositional 1 (emphasisadded). 5_ Petition at 19—20.

it has taken control of Sirius XM, or even that it will tey to take controt afSizius XM.." Liberty Media‘s request callsfor precisely the type of"speculation as to what might occur in the Fature" that the FCC has consistontly rejected in determining whethor thore is a deaeto transfer of control, und the ugency should not depart from its traditional and well—founded practice in this circumstance." Liberty Media suggests the statutory requirement for RCC approval before completing a transfer of control entitles it to receive the ageny‘s blessing far some undisclosed future action that ultimately might yield defacto control ofSirius XM. But Liberty Media cites no case where the Commission has ever issued this kind of"blankchock" endorsing unindeterminate event. The prioapproval requirement in Section 310(d), upon which the Opposition relies, requires the BCC to review a specific proposed transaction and find it in the public interest before that transaction can be consurmmated,"" In this ease, it is entirely unknown what action Liberty Media would "consummate" within the 60 day deadline Following anyFCC approal."" Nothing in the Communications Act requires, or cven authorizes, the ageneyto bless some unspocified actionthat an applicant might choose to pursue. The primary case relied upon by Liberty Media to interpret Section 310(0), Lorain Journal Co. v. FCC, requires an applicant to "bring}| the In fact, LibertyMedia did not submit a proposal for the next Sirius XM annual stockholder mecting in May 2012 bythe deadline. 5. Liberty Media‘sassertionthat the RCC will refuse to consider hypothetical events only in third—party complaints ofunauthorized transers is baseless. Opposition at 20. The Opposttion cites no ease where the FCC considered i hypothetical eventin determining defueto control, * See Opposition at8 (eiting 47 U.S.C. §310(4) 15 47 CR §25.119(0) (CAssignments and transfers of control shall be completed within 60 days from the date of authorization. Within 30 days of consummation, the Commissionshall be notified by letter of the date ofconsummation and the file numbers of the applications involved in the transaction.")

complete frets ofthe propased transacrion tothe Commission‘s attention.""" This is consistent with the Commission‘s decades—long, unbroken history of requiring parties to proffer conerete plans for nctual transfers."" Furthermore, if Liberty Media‘s unstated plan involyes some sort of hostile takeover, it bas not followed the Commission‘s established Policy Statement on Tender Offers und Proxy Contests."® This process would have allowed Liberty Media to comply with the statutory . requirement for prioe approval byestublishing an interim voting trust to hold is interest in Sirius XM while the agency passedon Liberty Media‘s full application for de fueto control."" Potential PCC licensees have regularly used voting trusts to effoct a transfer ofcontrol before the completion ofthe statutory comment period and the deadline for reconsideration.®" The fact that 381 Rd 824, 830 (D.C. Cir, 1965) (citing Public Norice on Procedure of Transfer and Assignment ofLicenses, 4 R.R. 342 (1948)) (emphasis added). 7 ‘The POC has stated that realistic definition of the word ‘control"| includes any aet which vests in a newentityor individual the right to determine the munner or means ofoperating the liccnsceand determining the policy that the licensee will pursue."" See Stephen PSewell, Assignments and Transfers ofControl ofPCCAuthorizations Under Section 310(d) ofthe Communications Act of1934, 43 Fed. Comm. L.J. 277, 295—296 (1991) (quoting Powel Crostey, J., 11 FCC 3, 20 (1945)) (emphasis added); Insight Communications 4 6 (describing "the terms of the proposed transaction"); Applications ofAT&T Inc. and Deutsche Telekom AG, Order, 26 FCC Red. 16184 4 49 & n.146 (2011) (considering the competitive effects of"tJhe proposed transaction®). i See Tender Offers and Proxy Contests, Policy Statement, 59 Rad, Rog. 2d 1536 (1986), appeal dismissedsub nom. Office of Comme‘n ofthe United Chirch ofChrisrv. FCC, 826 F.24 101 (D.C. Cir. 1987) ("*Tender Offer Policy Statement"); vee also In re Applications ofQVC Network,Inc., Memorandum Opinion and Order, 8 PCC Red. 8485 * 4 (1993) (recognizing use ofprocedure described in policy statement in "past tender offers involving larget communications corporations"). Liberty Media is certainly nware of the FCC‘s Policy Statement because it cites to the statement multiple times in the Opposition. See Opposition at $—9. C See Tender Offer Policy Statement* 35 & See Application of WorldCom, Inc. and MCI Communications Corporationfor Transfer efControl of MCI Communications Corporation to WorldCom, Inc., Memorandum Opinion and Order, 13 PC Red. 18025, §4 n.11 (1998) (describing WorldCom‘s use ofa voting trust i its inital application); Applicattons ofL. P. Media, Inc. and G. Wiliam Mitler, Trustee, 102 FCC 24 1276 (1985); Applications ofOne Two Corparation and Eugene MeCarthy, Trustee, Memorandum Opinion and Order, 58 Rad. Reg. 2924 (1985)

LibertyMedia has disregarded this procedural option raises doubt about whether it really intends to take hostile action to gain control ofSirius XM. Liberty Media seeks regulatory approval for the equivalcnt ofan option to acquire control atsome unspecified point in the fature and under some unspecified cireumstances.. Such a gumbit must fail because, absent un actual transaction that would yield control, here is nothing for the Commission to review.*" Ti LIBERTY MEDIA SEEKS To REWRITE THE ECC‘S TEsT FOR CONTROL T10 FOCUS SOLRELY ON THE NUMBER OF SHARES OWNED. A. Liberty Media‘s Single—Minded Focus On Minority Owaership Cannot Be Reconciled With Decudes OfFCC Procedent; Liberty Media‘s only attemptto link its controltheory to actual facts,rather than speculative furure actions,i a claimthat its unrestrieted 40% stock interestis sufficient, standing alone, to give it de facto control." Yet, FCC precedent is clea and unwavering«—the de faeto transter of control analysis "must ofnecessity transcond formulas, for t invalves an issue of fact which must be resolved by the special circumstances presented."""" No single factor is * Indecd, Liberty Media‘s Application should be dismissed as defective because it omits required information. 47 C.F.R, § 25.112. As the FCC has stated, "pleadings inconsistont with the Commission‘s procedural rules waste the resources of the Commission and other partics to a procceding.". State of Indiana andSprint Nextel Cory., Order on Reconsideration, 26 FCC Red. 5067, 1 7 (PSB 201 1); ee also Maritime Communications/Land Mobile, LLC, Order to Show Cause, 26 FCC Red. 6520, 443 (201 1) (holding that an applicant providing "piecemeal and selective" information "wasted precious Commission resources") 8 See Opposition at 11 (*Commission precedent demonstrates thatthe 40% shareholder of a publiclytraded company, unconstrained by statutory or contmctual limilations, is able to exert de facto contol over that company when the remainder of is stock is widely held."). As discussed in/ra, the "Commission precedent" upon which Librty Media relies does not support the remarkable proposition that large percentage ofminority ownership, standing alone, amounts to defacto control. *\ Stereo Broadeasters, Inc., Memormndim Opinion and Order, 55 FCC 24 819, 821 (1975), affdon ather grounds, 652 .2 1026 (D.C. Cir.1981); see also Lockheed Martin Corp. Regulus LLC and Comsat Corp., Memorandum, Order and Authorization, 14 FCC Red. 15816, 4 30 (1999), vacated part on other grounds, PandmiSat Corp. v. PCC, Nos. 99—1384, 1385, 2000 WL 621421 (D.C. Cir. Apr. 20, 2000) (*Comsar®); Univiston Holdings, Inc. (Transferor) and Perenchio Television, Inc. (Tranferee), Memorandum Opinion and Order, 7 PCRed. 6672 1 15 (1992) (*Univision Holdings, Inc."): CBSat 1025 (1986) (*[T There is no precise formula by which control maybe ascertained." (quoting TenderOffer Policy Statement at § 10); News

dispositive, and the Commission has expresslyand repeatedly "rejected a formulistc approach based on a particular level of minority holdings in ts de factocontrol analyses.""* Liberty Media‘s single—minded focus on its unrestricted 40% interest in Sirius XM ignores all of the other factors that the Commission has said are critically important, such as Board composition, management, and control of operations, As noled in the Perftion, Liberty Media holds only 5 of 13 seats on the Sirius XM Board of Directors (and, in order to vote its 40% interest in Sitius XM in a gonezal election of diroctors, Liberty Media would be required to convert its Preferzed Stock to common stock, thus forfeiting itsright to proportional representation on the Board oDirectors and its other significant minority protection rights). ‘The CBO and Chairman of the Bourd are independent ofLiberty Media and have a relationship with Sizius XM predating Liberty Media‘s investment and equisition of a minority interest in the Company. Liberty Media is not enguged in Sirius XM‘s prograrnming or other aporational decisions. And, none of these factors changed upon expiration of the standstill provisions in the Tnvestment Agreement."" Liberty Media‘s reliance on general stockholder voting statistcs to claim efafo control based on its 40% ownership interest is specious.** The number of stockholders historically voting for any given matter is not on appropriate metric for forecasting the percentage of International, PLC, Memorandum Opinion and Order, 97 PC24 3494 16 (1984) (*News In‘?), 2t By Direction Leiter Regarding Control ofCBS Inc., Memormadium Opinion and Order, 2 ECC Red. 2774 1 4 (1987) (CRS 27 * To the extent Liberty Media claims the Appfication is necessarydue to the expiration of the standstll provisions and the need to complywith the Commission‘s prior approval requirement, it is at least six months 100 late. Assuming adherence to the PCC‘s informal 180— day "shot clock," Liberty Media would have needed to submit the Applicarion nolater than September 6, 201 1. as See Opposition ut 14—17.

stockholders who would vate in an extraordinary contest for control ofa corporation. Recognizing the inherent difficulty, ifnot impossibility, of predicting the results of a proxy challenge, the FCC has declared "confecture about the outcome o possible proxybattles is not a basis for determining control.""" More appropriately, the FCC holds consistently thata minority stockholder has "significant influence" but not contral because 60% could outvore 40% * This is a critical distinction:. while a controlling party can unifaterally imploment policies and direct corporate operations, an influential party must convincean independent board and/or independont stockholders o follow itslead or, at the very least, o refrain fromopposing it"" The FCC has held that"[tJhe influence must be to the degree that a minority sharcholder is able to ‘determine® the licensee‘s policies and operation‘ before it rises to the Tevel of a transfer of control."" Liberty Media‘s radical claim thatit has control based solely on ts 40% ownership stake and the expiration of eertain of the Investment Agrocment provisions Founders on this point. It may well be able to influence decisions that Sius XM makes but, without the aequiescence of a majority of Sirlus XM‘s stockholders (which it does not have), there is simply no way it can "determine" 6 CBS tay 25 Comsar 131 see also Sprint Corp,, Petition for Declarstory Ruling, 11 RCC Red, 1850 4 25 (1996) ("Sprint Corp."), Request ofMCI Communications Corp, British Yelecommunications PLC, Joint Petitionfor Declarntory Ruling, 9 BCC Red. 3960 4 14 (1994) (@MCHAT*) Offer Policy Statement1 15 (mo transfer of control where challenging porty virtue of the persusivencss of [its] arguments rather than by the power of Nerest|J") * News Jnt‘ 16; MCHBT § 11 ("A minarity sharcholder does not necessarily control a corporation unless it exercises influence to a degree that ‘dotermines‘ the company‘s policies and operations, or ‘dominates® the company‘s corporate alfairs. Thus, the facts ofa particular situation (c.g., who has the power to dizectthe company‘s operations, who determines the makeup ofthe Board of Directors), re relevant to determining who controls the company."); see also Sprint Corp420. 10

them, In fact, were Liberty Media to convert ts Preferred Stock to common stock in order to vote in a general clection of directors, there is no guarantee that Liberty Media would sueceed in electing any directors. Accepting Liberty Media‘s argument that "40 is the new50"—meaning that positive control ofa widely—held company is established when one entity aequires an unrestreted 40% of the shares—also could have serious practical implications. Conveying control to a single minority stockholder would diminish stockholder valle and conteavene the ageney‘s stated policy of protecting the interests ofall stockholders."". Moreover, adopting Liberty Medin‘s proposal would have wide and unpredictable consequences for any Commission licensce with a significant minority investor. The FCC‘s fong—standing policy, which looks toall indicia of control, is well understood by the industry. The totality of the cireumstances analysis provides leeway for investors to purchase minority stakes in Kieensees without being concerned that such an investment, standing alonc, would result in deaeto control. Endorsing Liberty Media‘s single—factor test would upend these expectations, This is particularly trie because Liberty Media‘s proposed standard does not contain a imiting principle. Its calibration of minority stockholder contral would appear to extend to non—mgjority stakes well below40%, so long as the remainder of the stock is widely held. Citing cases from "other contexts," LibertyMedia suggosts that even a share as small as 20% might be sufficient to give an investor defucto contral where the ownership of the other 80% of a company is widely—dispersed." 2\ See, eg., OVC Network Inc., Memorandum Opinionand Order, 8 FCC Red. 8485 °7 (1993) (recognizing that the agency must implemont the Communications Act in a manner that protects shareholders" rights (eiting Storer Comme ns, Inc, v. PCC, 763 F.2d 436, 4d3 (D.C. Cir. 1985})); ApplicationsofGWI PCS, Inc. For Authorityto Construct and Operate Broadband PCS Systems Operating on Frequency Block C, Memmorandum Opinion andOrder, 12 FCC Red. 64411 5o (wiB 1997). a See Opposition at 14. 11

Liberty Media‘s effortsto distinguish the Comsat and CBS cases cited by Sirius XM°" only reinforee the fact—intensive nature of the ageney‘s de feto control inquiry and the inadequacy of the Application. As Sirius XM has explained, Comsutstands forthe bedrack concepis that defueto control determinations are based on a "totality of the clements® and that "the size of a minoritysharcholder‘s ownership interest is not dispositive.""" The Opposition secks instead to focus altention on a statutory limitation on control present in that case but not here."": However, the PCC in Comsat also examined the percentage of Lockheed‘s interest (49%), Comsat‘s continued control ofthe Board, and the nuture ofthe pending merger agreement before concluding that Lockheed did not have defaeto control."" This detailed probe into whether Lockheed "dominate[d] the management ofcorporate affairs" belies Liberty Modia‘s laim that a single factor, such as share ownership, is dispositive."" Sitius XM‘s Periion also cited CBS forthe basic concept that examining control of the Board of Directors was a "most critical(]"factorin the FCC‘s conclusion thatLaurence Tisch did not control CBS."" Liberty Media tries to distinguish CBS by focusing on the fact that the Commission was reviewing events that had already occurred,rather than events that might occur in the future.?" Nothing in CHS suggests that examining control ofthe Board of Directors is "the most critical{)"factorin the dofueto control analysis only ifthat analysis is backeward rather than " Seeld at 1724 * Pertonat 15. — See Oppositionat 21—22. * Comsart[3441 " uts * Peiionat14n38. See Opposition at 19. 12

formard looking. And Liberty Media‘s claim that CBS is distinguishable because "the Board of Sirius has not and cannot"ropresent that Liberty Media does not "intend to assume control" inverts its burden. Liberty Media has steadfastly refuised to make any commitment to take a particular action with respect to Sitius XM. LibertyMedia relies on this selfereated uncertainty about ts future intentions to distinguish CBS and this alone highlights the purely speculative nature of the Application. This is precisely the "hypothetical future exercise of control" that the Commission rejected as a basisfor finding a transfer in CBS and in Amerfcan Mobile Radio Corp® B. The Cases Cited By Liberty Media Cannot Support Its Reinvention Of The De Facto C I Analysis. in the Opposition, Liberty Media continues to rely heavily on DIRECTYNewsCorp. and Liberly Media/DIRECTV." Yet, Liberty Media eannot reconcile two ecntral and glaring differences between those cases und the presont situation. Airst, in both D/RECTY/NewsCorp. and Liberty Media/DIRECTV, the applicants agreed that a defacto transferof control was taking place and represented as much in their application."" This concurrence between the parties * American Mobite Radio Corp 11. See supra note 13. # See Opposition at 11—13 (citing News Corp. and The DIRECTV Group, Inc., Transferors, and Liberty Media Corp, Transferee, Por Authorityto Transfer Control, Memorandum Opinion and Order, 23 FCCRed. 3268 (2008) (*LihertyMedia/DIRECTY‘) ©— Contraryto Liberty Modia‘s sugwestion that the ECC conducted anindependent evaluationofcontrol, see Opposition at 12—13, the agency‘s analysis ofNews Corp‘s "influence" as a minority sharcholder was made porsuant to the Commission‘s public interest determination ofanticompetitive harm. not defacto contral, See General Motors Carp. and The News Corp. Limited, Memorandum Opinion and Order, 19 FCC Red. 473 4 93—100 (2010) (DIRECTV/NewsCorp."). While influence does not amount to control under the FCC‘s de facto controlstandard, it is relevant to the FCC‘s "broader publicinterest® analysis. Compare MCUBT § 11 with Laherly Media/DIRECTV48 55—63,.In determining whether the transfer of contral serves the public interest, the ageneywill consider to what extent the transfer of control may (1) reduce existing competition, (2) decrease the n\arket ower of dominant firms, and (3) x;f;fect fiture competition. See Liberty MediaDIRECTV, 4 55—63; DIRECT V/f\’ew.sCurp 4t is 13

obviated any need for the Commission to cngage in a detailed analys is ofwhether the defacto control standard had been met. In contrast, the App/lcation reflects no such consensus (indeed. quite to the contrary), rendering thase cases inspposite. Second, in the cited cases, the minority stookholder secking approval for a transfer ofdefaeto control proposed totake leadership roles on the Board und in corporate management.". No similarshift of corporate responsibilitics has occurred at Sirius XM. Both the composition of Sitius XM‘s Board andits management remain unchanged, and Liberty Media has proposed no transaction that would fead to a different result Stripped to its core,the Applicution and the Opposition pasit that a single sentence in the introduction of D/RECTYV/NewsCorp, establishes that stock ownership, in and of itelf, conveys defacto contzol." Liberty Media places far more weight on this sentence than it can possibly bear. Ttis simply not eredible that the FCC would have discarded its review ofthe totality o relevant factors in a single introductory sentence ofa decision thatdid not address substantively the de facto control standard, and where other indicia ofcontral rendered such a revision unnecessary. As the Supreme Court has explained, law is not made by"hidfing] elephants in mouscholes."*" w See DIRECTVINewsCorp. 12 ("As described in the Application, if the proposed transactionis consummated, Rupert Murdoch, chairman and chief executive officer ("*CBO®) of News Corp,, will become chairman of Hughes, and Chase Carey, News Corp—s former co—chie operating officer, will become president andchiefexecutive officer of Hughes. Eddy Hartenstcin, eurrently Hughes® corporate senior executive vicepresident, will be named vice chairman of Hughes. Hughes® board ofdirectors consist of 11 directors, six of whomwill be independent directors.). a See Opposttion at 12 (citing DIRECTY/NewsCorp1 2 ("If approved, the proposed transaction willresult in News Corp. holding the single largest block of shates in Hughes, thus providing News Corp. with a defreto controlling interest over Hughes and its subsidiarics, including DirecTV Holdings, LLC.")). 6 Whitman‘v. Am. Trucking Ass‘ns, S31U.S. 457, 468 (2001). The D.C. Circult has held that the FCC cannot hide policy changes in footnates, MeBIray Electronies Corp. v. FCC, 990 F.2d 1351, 1362 (D.C. Cir. 1993) (reversing a Commission decision regarding the timely filing 14

The two additional cases that Liberty Media attributes to "other contexts" also fail to support its novel proposition that ownership ofan unrestricted minorityinterest alone amounts to de facto control. Liberty Media cites Bartell Media Corp.® and Broadband Personal Communications Services"for the notion that "similar equity intorests [to Liberty Media‘s 40%] are sufficient to constitute de faeto control.""" In Bartell Media, the Commission approved a transfer of control to Downe Communications Corp. (PCT*)after considering the Bartell family‘s abandonment of% tive management of corporate afairs" and DCT‘s existing and planned role in managing and programming the licensee stations, in addition to DCI‘s proposed acquisition of a 38% equity interest."" In Broadband PCS, de facto control was not even at issue. There, the FCC was considering the attribution standard under the commercial mobile radio service (°CMRS") spectrum agpregation limit." The Commission‘s focus in that context was on "influence"rather than "control," cvidenced by its statement that "even an entity that does not of applications which was based on one foomote in the arder}; see also Trinity Broad. ofFla, Ine. v. FCC, 211 F.3d 618, 630 (D.C. Cir. 2000) (finding thata liconse applicant did not have fair waming that a non—profit station with minorities conslituting the majority of its board was not minority controlled when notice was only provided in a footnote reforence to 1 policy statement). As the Supreme Court has explained, "the requirement that un agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position." FCCv. Fox Television Stations, tnc., 556 U.S, 502, 515 (2009); see also Dillmon v. NTSH, 588 F.3d 1085, 1089—1000 (D.C, Cir. 2009) ("Rensoned decision making, therefore, necessurily requires the agency to acknowledge and provide in adequate explanation for is depurture from established precedent."). s Bartell Media Corp., Memorandum Opinion and Orderand Notice of Apparent Liability, 19 PeC 24 890 (1969). C Broadband Personal Communications Services (Competitive Bidding and Ownership Rules), 11 RCC Red. 7824 (1996), recon. 12 FCC Red. 14031 (1997), affd suh nom., Bell South Corp. v. FCC, 162 P.3¢ 1215 (D.C. Cir, 1999) (*Broadband PCS) 9 Oppositionat 13—14. * Rartell Media Corp 16, 20. * Broadband PCS ¥f119—20. 15

have defaeto or dejure control but owns a 20% or mure interest in a licensee would have sufficient influence to reduce competition and should be subject o the CMRS spectrum aggregation limit"" Neither of these cuses supports Liberty Media‘s contention that owning un unrestricted 40% share, by itself, constitutes deeto control Iv. THE AGENCY‘S PROCEDURAL RULES REOUIRE DISMISSAL OF LIRERTY MEDIA‘S APPLICATION: Liberty Media‘s complaint that Sivius XM filedthe Periion prioe to a public notice ignores the agency‘s rules and precedent."" The ECC‘s rules permit consideration of a pleading filed prior to a Public Notice as aninformal objection."" Additionally, Liberty Media contends that the Perition is procedurally defective because it did not include on affidavit"* However, the facts required for the Commission to dismiss Liberty Media‘s Application ure not in dispute:(1) LibertyMedia owns a 40% interest in Sirins XM;® (2) the expiration ofcertain provisions in the Investment Agreement did not alter the management, Board of Directors, or day—to—day operations of Sirius XM;"* and (3) Liborty Media does not control the management, Board of Directors, or day—to—day operations of Sirius XM and has proposed no specific mechanism to do 8 d 4 120. By treating the percentage of shares owned as the preeminent factor in the de facto control nalysis, Liberty Media would erase the criical distinction, frequently recognized by the Commission, between influence and control. * See Opposition at 26—27. id See 47 C.F.R. § 25.154 (‘{t}he Commission will clasify as informal objections ... any pleading not filed in accordance with [the procedural rules} of this section ..."); see also 47 CBR. § 5.05. 5* gee Opposttion w26 (contending that Sirius XM‘s Petition "does not comply with the applicable procedural requirements of Section 309 ofthe Communications Act and the Commission‘s Rules®). i See Application at 2, 11, 14;, Opposition uti, 1. 5—6, 14, 17, 24 * See Application u1 2, 4—6, 12 (describing Liberty Media‘s "potential acquisition of de facto control"); Opposition at 4—7, 9—11. 16

s0."". Any affidavit atached by Sirius XM to the Perition would have only reiterated these uncontested factual points."" In contrast, the Application should be dismissed due to procedural infirmities. In Peace Broadcasting Corp., previously cited by Sirius XM, the Commission made clear that a disputed transfer application is defective and must be dismissed unless signed by all necessaryparties."" Because Liberty Media has not followed the proper filing procedures and has not oblained Sirius XM‘s signature, the agency must dismiss the Application. Liberty Media‘s claim that there is no corporate goverance dispute in this ease is preposterous giventhe simple fact that Sirius XM— at the direction of ts Board—has opposed the Applicarion. As in Peace Broadcasting. ismissal is appropriate here sothat this dispute over corporate cantral ean be resolved appropriately under state corporate law."" ‘The Commission‘s electronic filing and signature requirements are designed to ensure that transactions related to an FOC license are conducted withthe permission and knowledge o the licensee."" The agency‘s filing requirements can be waived based only on the applicant‘s demonstration ofgood cause. In this case, however, Liberty Media has not articulted a valid 8 Application at9; Opposttion at1, S, 10—11, 24—25. "* Moreaver, the ageney‘s rules for informal objections do not require specific allegations of faet supported by affidavits. 47 C.M.R. § 1.41 (‘Requests should set forth clearly and concisely the faets relied upon, the relief sought, the statutoryand/or regulatory provisions (iC any) pursuantto which the requestisfiled and under which relieis sought, and the interest of the personsubmitting the request.") ® Peace Broadeasting Corp., Opinion, 36 FOC 24.675, 676 (1972) supra Section II, who can assist Liberty Media with its long form application upon the consummation of events that result in an actual transfer orcontrol. ©—— See Peririonat 6i see, ex. 47 §§ 1.917, 5.57 (requiring signatures for the wireless and experimental applications, respectively}. 17

basis for granting such an extraordinary waiver. Instend,it merely reiterates that the falure to comply with the Commission‘s rules "resulted directly from [Sirius XM]‘s refusal to cooperate in the presentation and Giing ofthe electronic applications."*" But, as Sitius XM has explained, this reason "does not even begin to explain why the Commission should take the extruordinary step of accopting the Applicationfor filing despite the fact thatthe alleged transferor did not authorize it filing."* Finally,in refusing to cooperate with the AppHication, Sitius XM is not, as Liberty Media suggests, attempling to "thwart Commission consideration ofthe statutorily—required transfer applications.""" Ruther, as a matter of corporate governance, Sitius XM eannotjoin an application that it believes is insecurate, unneeessary, and contraryto Commission procedent.®* Participation by Siius XM in the Application would suggest that the Company agreos that e acte conteol has been transferred. Because this would not be factually correct, Sirius XM ©— Opposttion al 25. Liberty Media does not address Sirius XMs other procedural arguments that Liberty Media fuiled to: (1) seek a waiver of Section 25.1 19(d)‘s requirement to electronically file an FCC Form 312 and (2) justify the xtraordinary circumstances" required for the Commission to grant a temporury authorization for the earth and space stations. See Petition at 7 n.16. j Petition at 7. Liberty Media‘s implicit supgestion that ts procedurally defective flings were made in consultation with the ECC does not mandate a ditferent result. Ttis well settled that "[a) person relying oninformal advice given by Commission staff does so attheir own risk." Iure Applications ofMaryAnn Salvatorielfo, MemorandumOpinion and Order, 6 FCC Red. 4705 § 22 (1991). Liberty Media‘s "consultation," even if it occurred as Liberty says it did. does not forgive is numerous procedural deficiencies nor prevent the Commission from dismissing the Application. 6 Opposition ut 25. ©==— In fact, the FCC Form 312 that is required for the electronic filing of earth and space station transfer applications states the following: "WILLEUL PAT.SE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE AND / OR IMPRISONMENT (U.S. Code, Title 18, Section 1001). AND/OR REVOCATION OF ANY STATION AUTHORIZATION (C.S. Code, Title 47, Section 312(a)(1)), AND/OR FORFEITURE (U.S. Code, Title 47, Section 503)." See FCC Form 312. 18

management determined, after consulting with its Board, thatthe Company could not support the Application. v. conctusion For the foregoing reasons, the Commission should dismis the Application as procedurally deficient and/or deny the Application as contrary to the Communications Act, the Commission‘s rules, and years of RCC precedont. Respectfully Submitted, Richard y f) Jennifer D. Hindin Joshua 8. Turner Wiley Rein LLP 1776 K Street,NW Washington, DC 20006 202.719.7000 Attorneysfor Sirins XMRadio Inc. April 20, 2012 19

‘ERTIFICA or RVICE 1, Jackie Matin, do herebycertify that on this 20th day of Aprl 2012, T eaused a copy ofthe foregoing "Reply of Sirius XM Radio Inc." to be delivered to the following via Pirst Class U.S. mail or email: Robert L. Hocgle Nelson Mullins Riley & Searborough LLP 101 Constitution Avonue, N.W., Suite 900 Washington, D.C. 20001 Counsel for Liberty Media Corporation 7 . defeinPort_ Jackie Martin


Document Created: 2012-04-20 13:20:13
Document Modified: 2012-04-20 13:20:13
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