XM-Sirius A La Carte is ‘An Admission’ Merger Should Fail, NAB Says

NAB said comments filed so far show the merger would “violate longstanding Commission policies against spectrum monopolies and the procompetitive vision enshrined” in the 1996 Telecommunications Act. Neither XM-Sirius nor merger supporters “have provided evidence to refute these conclusions,” NAB said. If the FCC decides not to dismiss the merger application outright, it must designate the application for hearing to determine whether the merger would serve the public interest, NAB said.

The “economic and antitrust ramifications” of the proposed “merger-to-monopoly” include higher prices and fewer programming choices for satellite radio subscribers, less local radio programming and other public interest harms, NAB said. XM-Sirius “recognized this” just this week “when they offered detailed promises aimed at reducing these monopolistic harms,” it said.

The merging parties have no incentive to raise their prices since they are competing in an audio-entertainment market in which broadcasters are the biggest competitors, XM- Sirius has repeatedly said. NAB’s opposition to the merger is proof of this competition, XM-Sirius said in a joint opposition to deny the merger. XM-Sirius submitted a study to show the vast amount of audio-entertainment competition that exists. Competition is a two-way, not one-way, phenomenon, said XM-Sirius. “According to NAB and others, satellite radio competes with terrestrial radio, but terrestrial radio does not compete with satellite radio. This is economic nonsense,” XM-Sirius said.

The battle over character continued in XM-Sirius’ filing. NAB and XM-Sirius have fought over broadcasters’ allegations that the satellite radio operators violated interference rules. NAB said these violations show a lack of character and the FCC should not reward this by approving the merger. “Aspersions cast on the companies’ character as commission licensees are both irrelevant and incorrect, and provide no basis for rejecting this merger,” said XM-Sirius.

NAB’s own members have been subject to “tens of millions of dollars” in fines for breaking the rules, said XM-Sirius. “The FCC determined that the violations did not call into question the licensees’ qualifications to hold commission licenses.” The difference is that NAB members are not trying to become a monopoly, an NAB spokesman told us: “The hurdles ought to be higher for parties that want to be a monopoly.”

Requiring XM-Sirius to return spectrum used by one of the merging parties so another satellite radio operator could be licensed would be “catastrophic” to companies such as Garmin that have developed products based on one of the satellite radio systems, XM-Sirius said. Since current receivers are tuned to a specific satellite using specific spectrum, divestiture would cut off “roughly half” of the current satellite radio listeners, said XM-Sirius. “If divestiture were required, either the commission or the combined company would face the dilemma of deciding which existing subscriber base to shut-off,” XM-Sirius said.

Other commenters weighed in for first time on either side of the merger debate. But the Home Recording Rights Coalition took no position on the merger itself, filing reply comments only to urge the FCC to reject RIAA’s call to impose content protections as a condition for approval. Like Public Knowledge (CED July 25 p7), the Coalition argued the Commission “has no authority to interpret copyright law so as to circumscribe music listeners’ recording rights.” Even if the FCC had such authority, “this license transfer proceeding would not be the right forum,” the Coalition said.

With three recording industry suits still pending against XM and Sirius, and unsuccessful attempts to get Congress to enact an audio flag law, “RIAA is asking the Commission yet again for a broad and unwarranted copy protection mandate, this time in the form of a condition on the merger of XM and Sirius,” the Coalition said. “A mandate today is no more necessary than it was in 2004 or in 2006, and would punish the very innovators who are developing new markets for music and ways of enjoying it.”

Knowledge Ecology International opposes the merger, the Washington think tank told the FCC. “We agree that the satellite radio industry is a distinct market, and that the public interest is not served by the creation of a monopoly,” the group said. However, the Family Research Council, “after careful consideration,” thinks the merger “will serve the public interest,” on four conditions, said President Tony Perkins. According to Perkins, the merger order must: (1) Require the “expeditious, irrevocable” implementation of a la carte programming at pricing that’s permanent”; (2) Have an “interim” plan for blocking “vulgar or indecent” channels until a la carte becomes fully operational; (3) have an accurate “cost accounting methodology” that assures customers will receive “full-value discounts for the channels they choose to block”; (4) Require that customer invoices and marketing materials fully explain all a la carte options. -- Paul Gluckman, Heather Forsgren-Weaver

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XM and Sirius first discussed a merger much earlier than previously known -- more than four years ago, according to a preliminary proxy statement the companies filed Wednesday at the SEC for a shareholders meeting, not yet scheduled, to vote on the merger. In late 2002, when talks first began, XM’s service was about a year old and Sirius, under then-CEO Joe Clayton, was just expanding its service nationally. Both companies “were experiencing certain financial challenges and were in the process of restructuring their respective debt and equity capital structures,” the proxy said. But the merger discussions they started were abandoned when the companies couldn’t “agree on a basis to proceed,” the proxy said. Merger talks restarted when Clayton’s successor, Mel Karmazin, approached XM Chairman Gary Parsons in February 2006 “to propose a meeting on a variety of topics of interest to the two companies,” the proxy said. At a meeting March 6 with Parsons and XM CEO Hugh Panero, Karmazin “discussed in general terms why a combination would make sense from a business and financial perspective for the two companies and their stockholders,” the proxy said. Parsons and Panero agreed to “raise the possibility” of merger discussions with the XM board, it said. The board was brought into the loop that month, but no more “substantive” discussions were held until September 2006, the proxy said. Talks heated up through the fall of 2006 and early winter 2007, it said. The Sirius board was the first to approve the merger, doing so unanimously in a “lengthy” conference call Feb. 18, it said. The XM board followed suit the next day, and an agreement was signed, it said. It was announced publicly the same day.