- The Washington Times - Thursday, July 26, 2007

The 1997 Federal Communications Commission order that granted licenses to XM Satellite Radio Inc. and what is now Sirius Satellite Radio Inc. included a provision requiring the companies to make receivers capable of accessing content from both services.

Now, 10 years later, such devices are not commercially available.

In a formal complaint, a Sirius shareholder has accused the FCC of failing to enforce its rules.

Michael Hartleib, a California real estate agent, earlier this month filed a petition “to clarify the lack of enforcement and implementation of the interoperable mandate.”

The issue of interoperable receivers has attracted public scrutiny in recent months in the context of the proposed merger between District-based XM and New York-based Sirius, and not in reference to the 1997 licensing rule.

As listed on the FCC Web site, that requirement — FCC Rule 47 Sec. 25.144(a)(3)(ii) — says each applicant shall: “Certify that its satellite [digital audio radio service] system includes a receiver that will permit end users to access all licensed satellite [digital audio radio service] systems that are operational or under construction.”

The companies have tied the development of interoperable radios to approval of the $5 billion merger.

“When interoperable radios are commercially available, consumers who want to have access to the complete offerings of both companies will be able to do so on a single device,” Sirius Chief Executive Officer Mel Karmazin, who would head the combined company, told the Senate in April.

“The opportunity exists for us to commercially market an interoperable radio. Right now we have developed it. There’s one in my office right now,” Mr. Karmazin told This Week In Consumer Electronics earlier this month.

XM and Sirius say they have complied with the rule, which does not specify a date. In a joint filing with the FCC Tuesday night, the companies argued that the agency rules require that they certify a design for such a receiver — as opposed to making them commercially available — which they have done.

“In its implementing rules for the satellite radio service, the FCC required all satellite radio licensees to develop designs for an interoperable radio and to certify that they have done so,” the companies said. “Opponents have been unable to point to any commission requirement that the companies produce, distribute, market or sell interoperable receivers.”

The companies cite the FCC order issued on March 3, 1997, in which the commission discussed its licensing requirements. That order said applicants for a satellite radio service must “certify that its [digital audio radio service] system will include a receiver design that will permit users to access all licensed [digital audio radio service] systems that are operational or under construction.”

Unlike the nearly identical licensing requirement, the commission’s order adds the word “design.” In the same paragraph, however, the commission elaborated on its intentions: “We believe that, at the very least, consumers should be able to access the services from all licensed satellite [digital audio radio service] systems and our rule on receiver interoperability accomplishes this.”

Neither FCC staff nor the office of Chairman Kevin J. Martin would comment on or clarify the interoperability rule, citing the agency’s pending review of the merger.

When asked about the issue, both XM and Sirius referred to their filings with the commission. The Tuesday filing, which addresses criticisms of the companies, does not mention the petition.

Strict compliance with the rules and acting in the public interest could be construed as two separate issues, said Jonathan Blake, a communications lawyer with Covington & Burling LLP in the District.

The companies have said, “ ’Well if you really read the rules, they say it just requires us to have a design for it,’ ” Mr. Blake said. “I suppose another point you could make is the fact that they may be in strict compliance is one thing, but the further point is if they’ve been acting in the public interest.”

The issue has been used in arguments by both sides “offensively and defensively,” he said.

“Opponents of the merger say these guys aren’t great public citizens when they’ve not provided interoperability to the consumer, and then I think the two parties to the merger have tried to use the same thing, saying if you let us merge, we’ll do this.”

Mr. Hartleib, who declined to disclose how many shares of Sirius he owns, argues that the interoperability issue should be considered before the deal because the rule in question was in place well before the companies — neither of which has ever turned a profit — announced plans to merge.

Although his petition could undermine the companies, Mr. Hartleib said he supports the deal.

“I believe that the shareholders and the consumers have the right to know all the facts. I’m still in favor of the deal knowing all the facts,” he said. “The bottom line is what the mandate or law is or was, and the intent of was obvious; it was to give consumers a ubiquitous receiver.”

In demonstrating how consumers are affected, Mr. Hartleib uses the example of NASCAR.Consumers who bought XM radios last year to hear coverage of the sport would have needed to buy Sirius radios beginning this year, when NASCAR started a new contract with Sirius.

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