- The Washington Times - Friday, July 6, 2007

ANALYSIS/OPINION:

As the Federal Communications Commission and the Justice Department contemplate the proposed merger between the nations’s only two satellite-radio providers — Sirius and XM — two crucial questions must be answered. First, is the merger anti-competitive? Second, does the merger serve the public interest? In the highly complex telecommunications arena, few situations seem to be as clear cut as this one. Yes, the merger should be approved because (1) it is not anti-competitive and (2) it clearly is in the interest of consumers, especially where consumer choice is concerned.

If the satellite radio industry were a distinct and separate market, then it would be true that a movement from the current duopoly to monopoly would be anti-competitive. In fact, the audio-communications market abounds with competition, consumer choices and products that are close substitutes for one another. Satellite radio is merely one option in this market — a relatively small option at the moment. Serving a combined 14.5 million subscribers who pay a monthly fee of $12.95, XM and Sirius together account for a mere 3.4 percent of radio listening. While fewer than 5 percent of Americans listen to satellite radio weekly, nearly 95 percent of Americans listen each week to AM/FM, or terrestrial, radio. More than 20 percent of Americans now listen to Internet radio, whose mobility and portability will be rapidly increasing in the near future. There are six times as many Americans who listen to MP3 players (e.g., iPods) every week than listen to satellite radio.

The 2006 broadcasting revenues for Sirius and XM ($1.57 billion) was a tiny fraction of the $21.7 billion in radio broadcasting revenues captured by commercial terrestrial broadcasters. Meanwhile, virtually all of the 240 million registered vehicles in the United States have AM/FM radios, while fewer than 10 percent have satellite radio receivers.

If the XM/Sirius merger is not approved, satellite radio is in danger of disappearing. Indeed, that is precisely what the National Association of Broadcasters (NAB) — the merger’s fiercest opponent (and most dominant competitor in the audio-communications market) — would love to see happen. Since 1993 (Sirius) and 1998 (XM), their cumulative cash-flow deficits (capital, operating and interest expenses less sales) have exceeded $10 billion. Last year, Sirius lost $1.1 billion. XM lost $732 million. Satellite radio is an industry with huge fixed costs and low variable costs. As a result, a merger could generate large economies of scale and total costs savings between $3 billion and $7 billion in net present value.

In self-serving arguments that are riddled with contradictions, the NAB, which represents the 12,500 AM/FM radio stations, claims the XM/Sirius combination would represent a “merger to monopoly.” In reality, if the merger is not approved, today’s duopoly in satellite radio could disappear altogether, and consumers would be the biggest losers.

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