Washington

Department of Justice OK with XM-Sirius Merger

Satellite-Radio Combination Now Only Awaits FCC Approval 3/24/2008 09:22:00 AM Eastern

The Justice Department said the merger of XM Satellite Radio and Sirius Satellite Radio will not "substantially lessen competition," clearing the way for the merger if the Federal Communications Commission follows suit.

Sirius and XM got stockholder approval of the deal in November 2007. The FCC had not announced any decision at press time.

The National Association of Broadcasters, which has mounted a major attack on the merger under the generalship of NAB President David Rehr, was "astonished" by Justice's decision.

XM/Sirius

In a key finding, Justice concluded that satellite was part of a larger audio market rather than its own exclusive niche. Justice imposed no conditions, simply closing its investigation into the merger.

" In the retail channel, where the parties likely would continue to compete to attract new subscribers absent the merger," it said, "the division found that the evidence did not support defining a market limited to the two satellite-radio firms that would exclude various alternative sources for audio entertainment, and similarly did not establish that the combined firm could profitably sustain an increased price to satellite-radio consumers."

The agency continued, “After a careful and thorough review of the proposed transaction, the division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition and that the transaction therefore is not likely to harm consumers. The division reached this conclusion because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite-radio customers for several reasons, including: a lack of competition between the parties in important segments even without the merger; the competitive alternative services available to consumers; technological change that is expected to make those alternatives increasingly attractive over time; and efficiencies likely to flow from the transaction that could benefit consumers."

The National Association of Broadcasters was nonplussed by Justice's citation of the fact that the companies use different receiving equipment as an example that there is not substantial competition for existing customers that would be harmed by the merger.

"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade," said NAB spokesman Dennis Wharton in a statement. "[T]o hinge approval of this monopoly on XM and Sirius's refusal to deliver on a promise of interoperable radios is nothing short of breathtaking."

On a conference call with reporters, Department of Justice assistant attorney general Thomas Barnett said that "after a thoruogh investigation, [Justice] should not challenge the transaction."

Barnett said that in several areas the parties do not compete. That included for people who have already subscribed and purchased the equipment. Given the fact that the radios are not interoperable, he said, people don't do much switching among services.

He also said they do not compete in the "most important" distribution channel, which he called deals with auto manufacturers. Barnett said that the companies have separate exclusive deals stretching to 2012, and that after that there will likely be even more competition for in-car audio, including hand-held mobile broadband devices as well as AM and FM radio, HD Radio and mp3 players.

Justice did find some competition in the retail store market that would be eliminated by the merger, but there were not enough people who considered the two companies to be the closest substitutes to justify finding that the merger would harm competition or consumers.

Asked whether Justice had approved the creation of a satellite monopoly, Barnett said no, that it had not found that the evidence did not support limiting the market for audio entertainment to satellite.

He also said that while Justice took into account possible future competitors given the rapid advance ot technology, that was not "one of the core drivers" of the decision. Even without that assumption, he said, he didn't think Justice would have had a basis for challenging the transaction.

The merger had been strongly opposed by broadcasters, which argued that allowing the two companies to get together would create a monopoly in satellite radio, while the companies had said that they would simply be a stronger competitor in a crowded audio market that included cable radio, terrestrial radio and the Internet.

Justice usually coordinates merger reviews with the FCC, whose chairman, Kevin Martin, has said that he hoped to be done with the review by the end of this month. Martin has said that the merger had a high hurdle to overcome, but the companies' offer of a la carte channels was a positive sign.

The FCC had no response to the DOJ action Monday, though FCC Chairman Kevin Martin's assessment last week was that he expected DOJ to go first, and that he had asked his staff to look at "various options."

No FCC action was expected Monday, however.

Asked whether the a la carte offer had swayed Justice any, Barnett said that all the department had done was determine that there was not enough evidence to establish that the merger would violate antitrust protections of competition and consumers, and did not have to addresss any "remedial" issues.

Digital rights advocacy group Public Knowledge, which has supported the merger so long as it came with conditions, renewed its call for those conditions now that the ball is entirely in the FCC's court.

"With the Justice Department decision sanctioning them merger," said Public Knowledge founder Gigi Sohn, "the next move is up to the Federal Communications Commission.  We hope the Commission will act accordingly to impose conditions that serve the interests of consumers.”

They include a la carte or tiered programming, an agreement not to raise prices immediately, open access to outside devices, and a set-aside of channels for public interest programming.

Looking for more certainty in the satellite radio equipment market, the Consumer Electronics Association praised the decision and pushed the FCC to approve it as well.

"We applaud the Department of Justice (DOJ) for acting in the public interest to provide clarity in the marketplace and confidence to consumers," CEA said in a statement. "To the extent consumers have been awaiting a decision on this merger to purchase satellite radio systems, they can now move forward with confidence.  Now that the DOJ has approved this merger without conditions, we urge the FCC to move quickly to a decision.” 

 

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