Perspective: Is Uncle Sam serious about Sirius-XM?

Congress has scheduled another hearing, for April 17, on the proposed merger between Sirius Satellite Radio and XM Satellite Radio.

Like all significant mergers, this one deserves scrutiny by the antitrust and regulatory authorities. Congress legitimately has an oversight role as well.

But keep a keen eye: the way in which this merger is handled will tell much about whether our government officials grasp how dramatically communications and information services markets are changing.

I am concerned that the Department of Justice antitrust officials and the Federal Communications Commission regulators charged with reviewing the merger do not adopt an unduly narrow view of marketplace competition.

A narrow view might lead them not only to reject the merger, but to maintain in place outdated regulations that have the effect of chilling innovation and stifling investment.

Together, Sirius and XM offer about 300 channels of music, sports, talk, entertainment, traffic, weather and informational programming, many of them commercial-free. They currently have approximately 14 million subscribers.

There are a number of alternatives in the audio services marketplace that consumers may substitute for satellite radio, especially in the face of any price hike.

Despite having paid the government $170 million at auction to purchase the spectrum used to deliver their programming, and despite having invested billions of dollars since then in facilities, programming and marketing, neither Sirius nor XM ever has turned a profit in five years of operation. In 2006 alone, the two operators reported combined net losses approaching $2 billion.

Sirius and XM contend that the operational efficiencies resulting from the merger will allow the combined company to provide consumers with more programming choices at lower prices, as well as more advanced technological gizmos to boot.

The National Association of Broadcasters, which represents the terrestrial radio and television broadcasters and which has fought satellite radio from the days when it was little more than a dream, claims that satellite radio constitutes a discrete product market. Thus, in its view, a Sirius-XM combination would be a "merger to monopoly."

In typical Washington fashion, the NAB pleads that all it asks on behalf of local broadcasters--which, by the way, pay nothing to the government for the spectrum they use--"is for the opportunity to compete in today's digital marketplace."

Ah, there's the rub. There is a good argument that, in today's digital marketplace, the relevant market for purposes of assessing the merger's competitive impact is not the narrow satellite radio market, but rather a broader audio entertainment and information market.

As UBS put it in an investment report, "the combination of an enhanced programming lineup with improved technology, distribution and financials will better position satellite radio to compete for consumers' attention and entertainment dollars against a host of products and services in the highly competitive and rapidly evolving audio entertainment marketplace: including free 'over the air' AM and FM radio, iPods, mobile-phone streaming, HD radio, Internet radio and next-generation wireless technologies."

A Merrill Lynch research report stated that the merger could deliver greater content choice, offer improved technology and realize cost synergies--all of which could help satellite radio "remain competitive in the evolving audio entertainment landscape as it competes with terrestrial radio, Internet audio media, HD radio and portable music players."

In short, there are a number of alternatives in the audio services marketplace that consumers may substitute for satellite radio, especially in the face of any price hike.

Each year, the FCC issues a report examining the status of video competition. In 2006, the commission concluded that "the market for the delivery of video-programming services is served by a number of operators using a wide range of distribution technologies."

The agency included in its competitive examination cable operators, satellite television operators, telephone companies now providing video service over their broadband facilities, wireless cable operators, Internet-based video services, and DVDs and videocassettes.

It is difficult to understand why the full range of distribution technologies similarly would not be considered in assessing competition in the audio services market.

Some of the comments from those opposing the merger are baffling. For example, Scott Cleland, a communications industry analyst, claims that the spectrum granted to XM and Sirius "alone makes satellite radio a separate and distinct market for antitrust purposes."

While certain conditions attached to the use of spectrum may be relevant in assessing competitive impacts, simply using spectrum cannot be determinative for purposes of defining a relevant product market.

Terrestrial radio and television broadcasters use spectrum. So, too, do satellite television and wireless cable operators. Even cable operators and Internet service providers often use spectrum as part of their network configurations. Few seriously contend that these providers each compete in separate markets because they use different frequencies.

What is most important now for sound communications policy is to move beyond classifying and regulating services based on the particular technology or slice of spectrum used for distributing the service.

Whether evaluating the competitive impact of a particular merger or deciding whether to jettison archaic, unduly burdensome regulations devised during an earlier, generally monopolistic analog era, the important question should be: do consumers have reasonable alternative choices in the marketplace?

At bottom, it seems wrong to consider satellite radio a distinct market separate from the broader audio services marketplace. But my principal concern is not whether Sirius or XM are allowed to merge. It is that consumers continue to enjoy the widening array of information and entertainment choices that the digital revolution is enabling.

Increasing consumer choice depends on robust investment and innovation in new products and services. And robust investment and innovation ultimately depend on government officials appreciating that they should be wary of intervening in today's dynamic, increasingly competitive communications marketplace.

Biography
Randolph J. May is president of the Free State Foundation, a Maryland-based think tank. The views expressed here are his own.

More Perspectives

[AndyNJ]

If this gets appoved say goodbye to local radio programming

Allowing this merger will set a precedent and ultimately limit speech and the variety of information available over the air. The major media conglomerates will see this as an opportunity to challenge the FCC's limits on the number of stations that can be owned per market. The FCC will be forced to allow more consolidation of the media resulting in fewer companies owning radio stations. This being the case, the kind of information available will be pretty limited. The points of view represented on the air will be much more limited.

We will also see the demise of local programming as these conglomerates will take over the small, local stations and also realize that the can cut costs by producing content at one station and simulcasting it to their other stations. This is something that already is done on a large scale by many radio stations.

[woggs123]

Boo Hoo

Gee, I'm so sorry that the local stations will need to deliver something folks really want instead of blathering morning talk, the same 10 songs all day and endless commercials.

I have already abandonned ALL the regular FM stations in favor of XM because I will not listen to the trash that is spewed by every one of them into the air waves. I'll gladly pay a monthly fee to listen to what I like.

If this does NOT get approved, then say goodbye to ALL broadcast radio because we'll all gladly switch to our 8GB ipods, which can store 80 hours of our favoritme music anyway. WAKE UP. We have plenty of choices and we will make them... Deliver the best product insted of complaining about competition.

[furball123A]

Local Programming...

Having worked in "local" radio off & on for the past 20 years...there is no such thing as local radio...if you hear any networked programming on your local radio station. Even music stations are programmed from their offices in cities like LA or New York City. The last stations I worked for were programmed from a suburb of LA by the station owner...because he "knew" what people liked to hear. The real reason...he would only allow anything which he liked or agreed with...no matter what the local audience wants.

If your local station is owned by Clear Channel or the other big radio firms...you don't have any local programming. Since local staff costs money & causes issues (like wanting time off & stuff like this)...these conglomerates only run their networked programming. You will not believe how many station owners hate having on-air staff. All the owners see are "money pits" & staff who they think should be happy to even be on the air.

Myself...XM is worth EVERY penny I pay every month...since I don't have to listen to the idiotic commercials & blathering you hear on "local" stations. I want to hear that...just got to read most blogs.

[photog_7]

Merger = Higher Prices

The companies have already said they will institute a tiered pricing model similar to cable tv, meaning you are likely to have to pay premium prices for the channels you actually want in order to subsidize the overpriced deal they made with Howard Stern. This merger will be a bad deal for consumers, but higher prices might also turn customers away from satellite radio as well.

[cjwall67]

No real alternatives for some of us.

I drive about 100,000 miles a year around North America. I have
a SONY mp3 deck in my truck, so on a few dozen disks I have
pretty much every piece of music that I own accessible to me. A
year or so ago, I noticed that the deck was xm ready, and for
about 150 dollars I got a unit that uses my deck display and
remote to run xm satellite. WOW!! No more fuzzy FM that
drifted in and out between cities. No more AM with its
shortwave radio squeals and buzzes and crappy audio quality. I
got access to music that would never be heard on commercial
radio, and a diversity of news and talk able to meet anybody's
particular slant on life. No Howard Stern?? That's probably the
best thing about XM, although they have several variations of
that particular brand of entertainment. Merger or no merger, I
want my xm, and I hope they settle the question before it's too
late.

[niel53]

I Agree

I agree.. technology will suffer if this merger does not go through, along with satellite subscribers and shareholders. America must revive the technology sector.. along with this merger, new inventions and new technology will surface. New technology that will stimulate the american economy. This was a very informative and intelligent article.. I hope the people deciding this issue on the merger get a chance to read this. The only ones attacking this merger are ones who have something to gain from it's loss.......Thank you niel

[ragner]

I love the mix

Terresterial radio is already getting better with compitition from XM. Longer playlists and more diversity. XM is going to get more competition from radio when it goes HD. In many citys, there are 30,40,or more fm stations plus am. With HD simulcast that would jump upto 30,80 program streams plus digital am. Markets could easily have 100 programs. All free. Now add internet!
At home I have HD, Xm and internet. With some overlap, each seems to offer some thing unique. Like our truck driver friend said, XM is great for long trips. Radio with Hd offers local programs and news.Internet offers unique podcasts like Firefly talk. I love the mix.

[rgor]

Better Deal

Here is what the main points for the merger:
1. NAB Conglomerates NOT satellite radio puts local stations out of business.
2. I have the right to listen to content that is uncensored. I PAY to have this service it is MY choice, if you don't like it then listen to terrestial FREE radio.
3. The 2 companies are going broke. This is stick it to Clear Channel and their stiffling of creative programming.
4. WiFI, Subscription music, Cable, Portable music players etc, are competitors.
5. There is more freedom to say what you want on Satellite radio then terrestial radio.
6. IF they raise prices and I cannot afford it, I will drop the service.
7. Cost cutting and consolidation is essential if this subscription based service has a chance to compete against what is normally available for free.

[DeeJay114]

Merger= best for consumer

Did 'free' TV (you still pay for it by suffering through commercials) go away because cable came along (even when cable companies began consolidating)? No. I believe the prices will stay low- with more competition there should be no reason to raise prices. Most of the people who are railing about the possible price increase are people who put up with their cable provider raising prices all the time! To me, it would be different with satellite radio- they would save billions in the merger and could offer various packages with the combined channels (some overlapping channels would be eliminated, yes)- it will be a better freedom to choose than now. Always be suspicious of the NAB wen they are against something- they are rolling out HD radio as if it is not a direct response to satellite. I bring this up because the NAB is trying to argue they do not compete with Sirius and XM- that is utter nonsense!

[DeeJay114]

Ummm- open your eyes...

Clear Channel already owns enough radio stations in local markets (and across the country) to affect what is played locally and nationally. They also promote concerts and own numerous billboards. The satellite merger would make no sense if not for the FCC's horrendous decision to allow large media companies to gobble up radio stations like sharks in a feeding frenzy. That is the biggest reason why they need to merger in order to compete better. They will always be a market for FREE radio- not everyone will pay to hear better radio just as not everyone will buy cable TV to see The Sopranos.

[Stating]

Zero Competiion = GREAT Efficiencies

Any company that seeks a monopoly can use the rubric of increased efficiency as justification for reduced competion. You see it in telecom with AT&T, defense contracting, drug manufacture, etc.
In the long run, the consumer pays higher prices and gets an inferior product. The dirty secret of a "free market" is that the last thing free markets want is a free market.

"Sirius and XM contend that the operational efficiencies resulting from the merger will allow the combined company to provide consumers with more programming choices at lower prices, as well as more advanced technological gizmos to boot."