DoJ Won’t Block XM-Sirius Merger on Competitive Grounds
The Justice Department won’t block the merger of XM and Sirius because the evidence “did not show that the merger would enable the parties to profitably increase prices,” it said Monday. XM and Sirius are “working with the FCC to secure final regulatory approval,” they said in a joint statement.
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Lack of interoperable radios was a major obstacle to the satellite radio firms competing, DoJ said: “Because customers must acquire equipment that is specialized to the satellite radio service to which they subscribe, and which cannot receive the other provider’s signal, there has never been significant competition for customers who have already subscribed to one or the other service.”
That DoJ would “hinge approval” of the merger on XM’s and Sirius’ refusal to deliver an interoperable radio was “nothing short of breathtaking,” NAB said. “We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade.” NAB long has argued that the FCC required XM and Sirius to develop an interoperable radio, a stipulation it says the radio firms ignored. XM and Sirius have said commercializing an interoperable radio has been difficult for as long as both have competed, since neither wants to subsidize receiver costs to benefit subscribers to a rival’s service.
CEA hails the Justice Department “for acting in the public interest to provide clarity in the marketplace and confidence to consumers,” it said in a statement. “To the extent consumers have been awaiting a decision on this merger to purchase satellite radio systems, they can now move forward with confidence. Now that the DoJ has approved this merger without conditions, we urge the FCC to move quickly to a decision.” CEA had taken no position on the merger.
The long-term contracts that XM and Sirius each have with automakers weighed in favor of the merger, DoJ said. Were XM and Sirius to develop an interoperable radio, it couldn’t go easily into any existing vehicle “due to the engineering required,” DoJ said. Customers wanting a satellite radio service other than the one installed would need an aftermarket radio “less integrated into the vehicle’s systems,” it said.
Notwithstanding NAB’s claim that lack of an interoperable radio weighed unfairly in the merger’s favor, much of the DoJ’s finding seemed to rubber-stamp XM-Sirius arguments they face enough “audio entertainment” competition to make it hard for them to raise consumer prices. “While the satellite radio offerings of XM and Sirius likely are the closest substitutes for some current or potential customers, the two offerings do not appear to be the closest substitutes for other current or potential customers,” DoJ said. DoJ believes new audio entertainment platforms “are likely to offer new or improved alternatives to satellite radio,” it said -- echoing arguments XM and Sirius have made since announcing their merger agreement a year ago Feb. 19
FCC staff is drafting options for the agency, FCC Chairman Kevin Martin told reporters last week: “I haven’t figured out what I think we should do on it yet, but I do have them beginning to draft the backgrounds summarizing the record.” Martin voiced doubt that the agency would act before month’s end, as he had predicted, but indicated it would act before the merger agreement runs out in May.
The FCC will approve the merger -- with conditions, said Stifel Nicolaus. Public Knowledge wants to see conditions that include the combined company delivering on proposed a la carte pricing, not raising prices for three years, allocating 5 percent of channel capacity to noncommercial educational and informational programs, and giving third party manufacturers specifications for its radios. Georgetown Partners wants the FCC to require the combined firm to lease capacity and infrastructure to allow a minority-owned competitor into the marketplace. Media Access Project has suggested half of the combined entities’ spectrum be auctioned to create another satellite radio operator.
House Telecom Subcommittee Chairman Ed Markey, D-Mass., voiced similar misgivings as NAB. “The Bush administration has apparently never seen a telecommunications merger it doesn’t like,” he said. “Its decision to approve the XM- Sirius merger without conditions is therefore unsurprising.” Markey urged the FCC to take a hard look at long-term service plans and pricing, as well as equipment compatibility and pricing, in evaluating the merger and weighing potential conditions.
“If this merger is approved, consumers will have no choice about which satellite network they subscribe to if they want to listen to satellite radio,” said Kathy Wallman, spokeswoman for U.S. Electronics, a distributor opposing the merger. “It is only reasonable to allow consumers, at the very least, to have a choice as to which devices they will put in their homes and their cars to listen to satellite radio.”