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Sirius and XM
Question of the Day
It has been almost one year since Sirius and XM, the only two companies licensed to provide satellite radio in the U.S., announced their intentions to merge. To say that this proposed merger is problematic is an understatement. In the first month following the merger announcement, four congressional hearings were held. Subsequently, more than 80 members of Congress, state attorneys general, and numerous consumer interest groups and other entities formally opposed the merger, pointing out that it is a two-to-one merger creating a monopoly with harmful effects on other firms and consumers. But not all interested parties opposed the merger. Many have seen it as an opportunity for private gain.
The merger requires the approval of both the FCC and the Department of Justice. Speculation has it that the FCC intends to wait for the Justice Department’s decision. That puts the ball squarely in the hands of Justice to act decisively to avoid a most troublesome reality. A failure in leadership at the Justice Department will expose this merger to a free-for-all at the FCC to create a regulated monopoly under the broad public-interest standard. The likely result is a giveaway of concessions to special interests in exchange for a merger approval with price and content regulation heretofore inconceivable under Republican leadership.
If past is prologue, the benefits of concessions will not necessarily be distributed to consumers and others who would be directly harmed by the merger. For example, the AT&T;/BellSouth merger resulted in a controversial “network neutrality” condition, which lacked clarity and widespread congressional approval. Various interest groups have already lined up in support of this merger in exchange for a mandatory allocation of satellite radio channels for “public interest” programming or subscriber refunds for blocking “objectionable” content.
Moreover, the FCC chairman has already commented favorably on the proposed new subscription pricing plans offered by the merger parties. That pricing plan did not meet with an enthusiastic reception by leading consumer advocates such as Consumers Union or the Consumer Federation of America, and its alleged benefits to subscribers are at best illusory. Nevertheless, features of that plan fit nicely with the FCC chairman’s desire to force cable television systems to offer a la carte program offerings, which probably means that, if left to the FCC, this merger will become just an opportunity to be exploited.
Simply put, this merger cries out for decisive action by the Justice Department under the Clayton Act, because it will completely eliminate competition in satellite radio. Current and future subscribers will be subject to whims of a monopoly, which will impose additional costs on consumers (regardless of a promise to fix prices for a temporary period of time), and deprive subscribers (current and future) of the benefits of competition in program offerings and technical features.
Within the mountain of information supplied by the merger parties to the FCC and the Justice Department, there is abundant evidence that Sirius and XM are in direct competition with each other to gain and retain subscribers. That evidence has been generously supplemented by the persuasive submissions of several consumer groups and others opposed to the merger. The notion that each provider disciplines the price of the other is plainly visible in their behavior — subscriptions to each are priced exactly the same. And the unique content and nationwide coverage of satellite radio is not available on any other medium.
So, why would the Justice Department continue to deliberate any longer? The prolonged delay can be explained, at least in part, by the vast number of transactions piling up for department review as Wall Street hastily moves toward further industry consolidations before a change in guard following the presidential election.
But hopefully there is not a hesitancy to act by the Justice Department because of concerns about losing an antitrust case. This case is not even a close call under the antitrust laws — it’s plainly a merger to monopoly. Moreover, it is an important case with great precedential value. Indeed, the Justice Department decision on the Sirius/XM merger is the litmus test for everything that follows, including Microsoft/Yahoo. If this case does not provoke antitrust enforcement from the department, no forthcoming merger proposal could be ruled impossible.
Former Attorney General Dick Thornburgh, an adviser and counselor to Kirkpatrick & Lockhart Preston Gates Ellis, is also a consultant to C3SR (Consumer Coalition for Competition in Satellite Radio).
By Matt Kibbe
The short-term deal will assure long-term overspending
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