Sirius and XM's star-crossed merger
A duck and a turkey don't make a swan
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Comment One man's "merger of equals" is another man's "merger of disasters." In the case of XM and Sirius, US regulators need to figure out just what kind of men they are. And nothing less than your rights to, well, sound will hinge on their decision.
It's been 76 days since XM and Sirius filed their merger intentions with the Federal Communications Commission (FCC), and the deal hasn't even passed preliminary review. The FCC is taking longer to examine the estimated $13bn merger than it did with the Time Warner/America Online and BellSouth/AT&T proposals combined. Ignore the FCC, and you find the Department of Justice scratching its head even harder.
The Federal hesitation to face the XM/Satellite tie-up proves understandable. We're talking about a government-created duopoly heading toward a government-sanctioned monopoly. Even Microsoft would salute the anti-trust issues at play.
In order for regulators to work around the obvious anti-trust concerns, they'll need to come up with some creative definitions for what counts as competition in the audible universe.
American Duopoly
On April 1, 1997, the FCC auctioned two licenses to provide Digital Audio Radio Service (DARS) via satellite over the 12.5 MHz spectrum on the condition that the two licensees would never merge.
XM and Sirius - paying about $90m each - won the contracts over Digital Satellite Broadcasting Corp. and Primosphere. The rule governing the victory was clear: no applicant is permitted to own more than one of the two licenses. In issuing the contract and organizing a different market for the companies to exist in, the FCC also established satellite radio as a separate entertainment medium.
Ten years later, XM and Sirius are struggling to survive. The two propose Voltron wisdom; only by combining their powers can they defeat the evil market that has battered and bruised them so.
So, now they want a bailout from the very regulators that crafted this situation in the first place. The FCC created a duopoly to ensure a level of price and service competition, and we're asked to ignore that.
Good Rule Hunting
XM and Sirius have some serious work ahead to ensure their marriage. The FCC is still debating the golden rule of the 1997 DARS agreement before they'll even begin to look at the case. Commission Chairman Kevin Martin said forgetting the rules set when they handed out the licenses will be a "high hurdle" for the companies to overcome.
Sirius CEO Mel Karmazin argues that the DARS anti-merger rule wasn't a "rule" at all, but rather more of a "statement."
"It's a little gray whether there's a rule or there isn't a rule," Karmazin said at a Lehman Bros. investor conference in New York. "If you go to the rule books, I'm not sure you'll find a rule."
Meanwhile, the proposed merger isn't getting any love from Congress either. Chairman of the US antitrust subcommittee, Wisconsin senator Herb Kohl last month asked regulators to block the deal on grounds it would cause "substantial harm to competition and customers."
Karmazin managed to put his rule hunting expedition aside long enough to explain to the House Energy and Commerce Committee why the deal is not, in fact, eliminating any competition. He argued that potential customer ears are constantly barraged by what is satellite radio's greatest rival: Sound.
XM and Sirius share the market not just with each other, but with all other forms of audio. Consider musical alternatives such as terrestrial radio, MP3 players, CDs, internet radio, street musicians, singing gondoliers — an industrious songbird — they all have the potential to steal satellite customers.
If only Rockefeller had the gumption to argue that Standard Oil faced competition from other forms of combustible material such as wood and laptop batteries.
Next page: Why a monopoly is good for YOU
COMMENTS
Obvious solution
If they want to merge, the government tells them to pick a hardware standard so that they're both on it. Afterwards, the government can grant a merger so long as one of the licenses are surrendered within 180 days of the merger. No worries about equipment, no worries about monopoly. Everybody gets transitioned to the same hardware, and now there's room for another competitor to come in and buy the other license.
Leave it to the United States government to screw that up, though.
There is competition
I switched to satellite radio (Sirius) in my car, and I would hate to go back to FM.
I have ten or so channels I usually listen to, but on long trips I might go through the spectrum a bit. There are good channels with good music on them. Its not perfect. The programming is very good but not great.
However, no commercials on the music stations I listen to. ESPN radio has commercials. Howard Stern has commercials (though they're really short and infrequent.) But, a) there's always something to switch to in commercials. I never go from a commercial to a commercial. b) I can see on the on-screen display which stations are on commercials and which are not.
I can listen to any NFL game. I can get notifications when scores change in anything except baseball.
Some of the music has stuff you won't find on any other radio station, except maybe some specific college radio shows. There is a classic hip hop station. There is a classic rock station (and it really is classic rock, not just Journey and Steve Miller.) And there's the BBC Radio 1.
Its worth my $10/month.
Regarding the merger, if it happens and they raise the price, I'll drop the service. Its not a utility. I don't need it, and neither does anyone else. So, let them merge. The worst case is they'll jack the price up, or add more commercials -- in which case they're out of business. I'd bet that most consumers of such a luxury item are totally sensitive to the price and quality of service. We do have alternatives. They suck, but they're alternatives.
Why did we start this anyway?
Sat radio was bust when it started. Gobs and gobs of elevator music that are the equivalent of Soma (see book: 1984) pills. What a waste of something that is expensive (how much for the radio?, and you want me to pay more every year?) and doesn't perform that well.
I can get a nice portable FM radio for about $20 that will work quite well. It even has an AM section that will tell me the local traffic (lots here in sillycon valley!). My nice "personal transporter" (it has a V8 in it!) even includes one already installed, and it is FREE after that. Satellite radio isn't that high quality and it will fade out in the drop of a hat (or overpass).
I might add that this "high definition" stuff is even worse. It doesn't work either and with the cost of radios that will receive it, that is dead as well.
What will probably happen is they they might let them merge, and when commercials are added (necessary to make money!!) the users will just say "why bother".
Let them die in peace as they are.
Remember how satellite phones were supposed to work? The only way they function now is because the original companies went "titsup". Sell the stock NOW!
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