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Sirius-XM Merger Debate Reheats As FCC Calls For Public Comment

By | July 2, 2007

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      The rhetoric supporting the proposed merger of Sirius Satellite Radio and XM Satellite Radio has been heating up during the first full week of summer, just as regulators invited public comment about whether a decade-old prohibition against the deal should be reconsidered.

      The U.S. Federal Communications Commission (FCC) issued a call for comment June 27 about whether its 1997 satellite digital audio radio service prohibition against the companies combining should be waived, modified or repealed should the FCC decide the merger would serve the public interest.

      At the same time, a number of organizations have come out in favor of the combination. Organizations including Americans for Tax Reform, the 60 Plus Association, FamilyNet Radio, the League of Rural Voters (LRV) and the National Association for the Advancement of Colored People were among those publicly announcing their support of a merger and arguing that such would provide for content which otherwise might not be available.

      A day after the FCC’s call for comment, Sirius and XM unveiled a study by economist and former FCC commissioner Harold Furchtgott-Roth’s that also favored the proposed merger.

      "An Economic Review of the Proposed Merger of XM and Sirius," was paid for by XM and Sirius and filed with the FCC as part of the companies’ merger application.

      "After studying various economic factors and potential changes in competing communications services, I conclude that American consumers have a wide and rapidly expanding range of choices for communications services that compete with XM and Sirius," Furchtgott-Roth said. "Additionally, these competitive choices discipline the prices that XM and Sirius charge subscribers today and will continue to do so regardless of whether the firms merge. I believe that government agencies should afford these companies the flexibility to respond to rapidly changing market conditions."

      The argument still did not dissuade senior market analyst Jimmy Schaeffler of the Carmel Group, whose April 3 white paper recommended that federal regulators not approve the merger "under any conditions." At the time of its release, Schaeffler’s 11-page study had been criticized by proponents of the merger since it had been commissioned by the National Association of Broadcasters (NAB), a longtime rival of the satellite radio companies and staunch opponent of their merger.

      Schaeffler stood by his thesis. “Since we released it, there is not a word or a single piece that has been legitimately challenged,” he said. “We spoke of similar mergers, and our study was premised on [before Sirius-XM’s] was going to succeed, it has to get over [certain] hurdles.”

      As Schaeffler wrote in January, a month before the merger was proposed, “the FCC’s core DNA is a single mission statement supporting three key motivations: competition, diversity and localism. As the FCC has found in the DirecTV-[EchoStar] rivalry, the fact that Sirius and XM compete so vigorously pours fuel upon the FCC’s ‘competition is good’ mantra. In fact, section 170 of the FCC’s digital audio radio service (DARS) rules states, ‘Even after DARS licenses are granted, one licensee will not be permitted to acquire control of the other remaining satellite DARS licensee. This prohibition on transfer of control will help assure continuing competition in the provision of satellite DARS service.’”

      The League of Rural Voters’ June 21 analysis drew distinctions between the state of the direct broadcast satellite market when DirecTV and EchoStar attempted to merge in 2002 and the audio entertainment market facing Sirius and XM.

      "Sirius and XM are two small pieces in a very broad market,” Niel Ritchie, executive director of the League of Rural Voters, said in a statement. "However, it is far from the only choice. Rural consumers have an array of audio entertainment choices today and will continue to do so after the Sirius-XM merger."

      This increase in the number of consumer options in the audio entertainment market is a key difference between the two mergers, the League of Rural Voters said. “In the EchoStar/DirecTV case, the FCC determined that there were at most, two [direct broadcast satellite] providers.”

      While opponents of the Sirius-XM merger have tried to frame that combination in the same terms as the DirecTV-EchoStar arrangement, "the commission’s review of the proposed merger of DirecTV and EchoStar in 2002 provides no guidance to the analysis applicable here,” the League of Rural Voters said.

      Schaeffler asserted that the regulators — be they from the FCC or the U.S. Department of Justice, which must also approve the merger — would give the benefit of the doubt in favor of the regulatory status quo. “The [Sirius-XM application] was made in March 2007, and that’s what needs to be considered, not a crystal ball looking at what all the other competitive products will be — MP3 players in cars, etc. That works against them as well,” he said. “You assume that precedence is in place.

      "Furchtgott-Roth is not coming over the threshold, and neither has anyone else,” Schaeffler said. “When all is said and done, there’s not been a single effective rebuttal. The benefit of the doubt still goes with a non-approval.”

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