February 28, 2007 4:17 PM PST

House panel grills Sirius chief on XM merger

WASHINGTON--Sirius Satellite Radio CEO Mel Karmazin on Wednesday defended the proposed union of his company with XM Satellite Radio before a panel of politicians with varying degrees of concern about the deal's potential impact on consumers.

Appearing at the first hearing convened here by the House Judiciary Committee Antitrust Task Force, Karmazin said a combination of the sole two satellite radio players would lower, or at least cap, its prices and provide more programming choices.

For example, one network carries Major League Baseball games, and the other carries the National Football League games, but neither carries both. Sports fans would no longer have to pay to subscribe to both services or buy two different radio receivers if the entities merged, he said. Karmazin also pledged that existing radio receivers for each service would continue to work after the melding of the companies.

"We are absolutely convinced that this merger is going to be in the consumer's best interest," said the Sirius chief and former Viacom president.

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Attitudes toward the proposed deal, worth about $13 billion, did not appear to be split along party lines among members of the newly created House task force, which has 10 Democrats and nine Republicans. Many opened their questioning on Wednesday with vows to keep an "open mind" about the deal but went on to question the deal's necessity and its benefits to consumers.

Task Force Chairman John Conyers (D-Mich.) pressed Karmazin to explain how he planned to persuade federal regulators that the companies will follow through on their promises.

"'Trust me' isn't going to work here, not just today, but in the longer-term examinations that you will be going through," Conyers said. "You've got some high hurdles to overcome, don't you think?"

One hurdle already lies in the licenses granted to the companies by the Federal Communications Commission. In hopes of ensuring competition, the FCC stipulated at the time that there had to continue to be more than one licensee in the satellite radio sphere. XM and Sirius would have to persuade the regulators to waive that decision.

Citing the FCC's policy decision, Rep. James Sensenbrenner (R-Wis.), the former chairman of the House Judiciary Committee, challenged XM and Sirius executives' repeated assertions that the merged entity would not constitute a monopoly.

"What you appear to be advocating is to make your merged company somewhat akin to an old regulated gas company, and I don't see where the consumer ends up benefiting in that," Sensenbrenner said.

He also questioned how the XM-Sirius plan was any different than a proposed merger between EchoStar Communications' Dish Network and Hughes Electronics' DirectTV that the FCC blocked on the grounds that it amounted to a "regulated monopoly."

Karmazin said his companies' situation was different because the satellite TV business competes with cable and not with free services like terrestrial and Internet radio. Throughout the hearing, he repeatedly challenged any suggestion that the merged companies would have incentive to raise their prices by saying, "We compete with free."

One key question in assessing the deal's impact lies in defining the satellite radio's competitors. If satellite radio is viewed as an entirely separate market, then the proposed deal would seem to amount to a situation in which a monopoly is created--at least until the next satellite player emerges. By contrast, if regulators decide it should be considered part of a broader market that includes all forms of digital and retail music, such as Internet-based and terrestrial radio, then the competitive implications would change drastically.

Sirius and XM argue the union of their two companies will not amount to a monopoly, as critics have suggested. They maintain the deal will instead allow them to compete more effectively with Internet-based and traditional broadcast radio. According to analysts' estimates, the combination could save the companies $300 million or more each year, Karmazin said.

But opponents like the National Association of Broadcasters maintain the situation is no different from the satellite TV merger situation and would create a "government-sanctioned monopoly." Speaking alongside Karmazin and representatives from consumer advocacy groups, NAB CEO David Rehr told the task force that such an arrangement would violate federal rules and would "undermine audio content competition, not enhance it."

Rep. Anthony Weiner (D-N.Y.) took issue with that characterization of the proposed deal. He said it was clear that satellite and traditional radio operators offered similar and competing services and that NAB's fight against the deal only reinforced that traditional radio operators are concerned about new competition.

The term monopoly "might serve to send shivers into the spine of regulators, but it doesn't have much effect if it has no foundation in the realities of the world today," he said.

Consumer groups' perceptions have been mixed. Mark Cooper, director of research for the Consumer Federation of America, voiced strident opposition to the deal, saying the groups he represented "remain unconvinced by the excuses we have heard to justify this merger." He said he was convinced only "head-to-head competition" would lower prices for consumers in the long run.

Gigi Sohn, president of the advocacy group Public Knowledge, told the panel that the merger could lead to consumer benefits if certain conditions are imposed. She suggested requiring the company to make a la carte or tiered programming available, agreeing not to raise prices for three years after the merger is approved, and making 5 percent of its capacity available to independently controlled, non-commercial educational and informational programming.

Rep. Rick Boucher (D-Va.) endorsed Sohn's recommendations. "This merger is very much in the public interest and should be approved with those conditions," he said.

The FCC and the U.S. Department of Justice share the ultimate responsibility of to deciding whether the deal should go through and what restrictions must be placed upon it. It's unclear how the congressional task force will fit in, although Rep. Lamar Smith (R-Texas) said he hoped the agencies will consider its findings when making their assessments.

Smith, the top-ranking Republican on the Judiciary Committee, also urged his colleagues not to "prejudge" the proposed merger. "We are at the beginning of a very long process," he said.

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20 comments

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This merger needs to happen
First, the government allows the creation of behemoths like Clear Channel, which leads the demise of any terrestrial radio worth listening to and then argues against providing the only decent alternative with the means to compete.

It is obvious that only one of these two companies can survive in the current environment (and it is increasingly looking like Sirius), so they should allow the merger, but with some caveats.

A moratorium on price increases for reasonable period of time, say 18-24 months.

A plan for merging the two systems into one within a fixed period of time and returning the unused spectrum for use by a future competitor.

The opportunity for customers of both companies to have a say in how programming is merged.
Posted by adlyb1 (123 comments )
Reply Link Flag
Let me add something else
The merger should not, under any circumstances, require the purchase of new equipment unless XM/Sirius will fully compensate for updated hardware.

I have XM, and I will not be happy -- meaning I will cancel -- if I am forced to buy new equipment.
Posted by i_am_still_wade (250 comments )
Link Flag
Current Structure Has To Go
I have XM because it broadcasts ACC sports. My partner needs Sirius because it broadcasts SEC. The FCC and Congress want us to pay $26 a month and purchase 2 radios. Versus if they merge and we have to pay say $15 a month for combined service. Hmm. Which is better for the consumer?

Someone mentioned Clear Channel's domination of free airwaves. They own a big chunk of XM too and have already destroyed a big portion of the value proposition by forcing commericals. They will own a big chunk of the combined company as well. Breaking up that monopoly is where the FCC and Congress should really be focusing their time and attention.

There are distinct advantages and disadvantages to the two types of Satellites being used. We used the XM radio on our move across the country and had to turn it off through much of Western Wyoming, Idaho, Montana because the hills kept cutting off the signal. A dual mode radio would give more consistent coverage. (Sirius satellites change their relative position above the earth so technically should be able to handle valleys much better.)

Finally, my series 1 Delphi MyFi is suffering for quality issues. I'm going to have to replace it soon. Let's get this merger over soon so I can buy the new dual mode / advanced radio. (Let's get real, yes you can still use your original analog Star-Tac phone, but the newest services require the newest equipment. Same will happen here. Stop being cheap!)
Posted by tarredwebfoot (1 comment )
Link Flag
Return the spectrum
I too think either a merger or acquisition has to happen. Both these companies have been burning investment capital for too long, and the well is starting to run dry. But they shoudn't be rewarded for their failure.

This spectrum...the airspace that these channels occupy...is a valuable limited resource that (at least theoretically) is owned by the American public and administered through "our" FCC. These companies knew when they applied for the ability to use the bandwidth, that there would be one and only one competitor.

I'm sorry things didn't work out for them and for their investors, but we already gave them protection by licensing a duopoly and we shouldn't reward their collective failures by giving them more by handing them a monopoly. Its not like we don't have other uses for this spectrum.

Let them decide which of the two delivery systems is the best, provide a free or reasonable way for the users of the rejected technology to migrate to the selected one, and give the spectrum back to the real owners so that we can use it either for another technology that is profitable to deliver or reserve it to re-establish a duopoly (should we find more starry-eyed entrepreneurs).
Posted by PBCliberal (2 comments )
Link Flag
XM/Sirius merger
I believe this merger is a great deal for consumers of Satellite radio.
Although many people feel they don't want to have to worry about buying new equipment, I believe that as new equipment becomes available, many adopters of Sat. radio will "upgrade".
I have an S50 unit by Sirius. At some point in the future, I will probably "upgrade" to the new fully portible Stiletto unit. (or a future version of a fully portible unit) Also they may add video services, that would be a reason to upgrade.
I think setting aside a section of frequencies for a future competitor is a good idea, once the companies have merged and rolled out future products. The other thing would be for the merged company to offer a trade in program for older hardware.
I'm looking forward to MLB to go with my NHL, NBA, NASCAR and NFL, not to mention Howard Stern.
Posted by wpavlik2 (106 comments )
Reply Link Flag
No merger
This merger should never happen. No merger mean competition and good for customer.
Posted by Pauldsu (83 comments )
Link Flag
stop the merger!
there could be a future of digital push services...

let competition flurish.. even with expensive satilites...
Posted by wone123 (32 comments )
Reply Link Flag
Satellite Radio is an Optional Service
How can there be a monopoly on an optional service? Who the heck has to have a satellite radio? No one! If the service providers want to merge, let them. If they raise prices, the customers will leave.

Congress should get some panty lube and stop trying to distract the public from bigger issues. Find a way to stop rampant gas price gouging, feed hungry children, work on healthcare, anything with real value.

People should be angry that the congress is wasting time on this crud.
Posted by Im-Not-TED (21 comments )
Reply Link Flag
Digital FM radio is the competition
Why do you think clear channel wh0r3s out digital radio so much, satellite's clarity is a major threat to existing markets. The only way these companies are going to survive is if you allow the merger to go through. Let's see, you can have terrestial digital radio competing with one merged satellite company, or you can have terrestial digital radio being the only option and us consumers putting up with annoying crap like clear channel.
Posted by bemenaker (438 comments )
Reply Link Flag
One thing they could do if it does not go throught..
There is one thing the companies could easily do, even if the merger is denied - allow all the receiving devices (can, portable, home) work with both systems like AM/FM. That should not need approval and would go a long way in helping both consumers AND the companies. One would expect this would happen if the merger went through and its a good idea either way.
Posted by bsw11 (4 comments )
Reply Link Flag
What about Internet radio?
Per the proposed Sirius-X merger, the issue of consumer choice is important. However, in the debate between terrestrial and satellite radio, an important third player, Internet radio, has been omitted from the discussion. Anyone with a computer and Internet connection can now listen to thousands of radio stations worldwide online, without subscription fees. With the growth of wireless and satellite-delivered broadband, a combined effort by equipment manufacturers, Internet Service Providers (especially Broadand over Power Line) and radio programmers could make Internet radio widely available to homes, offices and cars, thus providing consumers with a third option for virtually unlimited audio programming offerings.
Posted by trylon (2 comments )
Reply Link Flag
Sirius and XM stock up 1.4%
Looks like there is no doubt on the street about this merger especially on such a off day. The current price of Sirius Satellite Radio is a gift.
Posted by jasonm0817 (23 comments )
Reply Link Flag
Lets Deregulate All Of It Shall We
I PROMISE YOU THAT THIS WILL BE APPROVED.
THERE ARE TOO MANY GREEDY PEOPLE INVOLVED HERE.

As a Radio Veteran I've seen this time and time again where big radio conglomerates want to buy each other out only to sell out the listener, cut out the individual voices, raise the rates and most significantly fire the employees that got them there. How do I know? I've been in Radio for many years. I know.

I can promise you this, if the federal government allows this to happen to Satellite Radio like it happened to terrestrial radio during the Clinton years with the signing of the telecommunications act, you will see all of the above happening all over again. This time it will be Satellite Radio's turn. And knowing some of these corrupt politicians you'll probably even see a stipulation that WON'T level the playing field for another potential Satellite company to sign on board if the merger is approved.

Trust me...it's all about the almighty buck in the end.

THE LISTENER STARTED COMING IN LAST when the telecommunications act was signed in to
law. What you hear on your terrestrial radio today is TOTAL evidence of that.
Posted by sumrzz (8 comments )
Reply Link Flag
 

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