FCC Releases XM-Sirius Details

Federal Communications Commission releases details of review of XM Satellite Radio-Sirius Satellite Radio merger.

The Federal Communications Commission released details of its review of the XM Satellite Radio-Sirius Satellite Radio merger Monday and it showed that the commission decided it was in the public interest to let the two companies merge even when the relevant competitive market was confined to satellite radio.

That left at least one commissioner pondering if the decision reopened the possibility for a merger of satellite-TV companies.

Unlike the Justice Department, the commission said it made its decision based on the "worst-case" assumption that the relevant market was not all audio-delivery services and was "limited to satellite digital-audio radio service [DARS]."

It said that was required because it did not have enough evidence in the record to gauge “anticompetitive harms."

It was under that more limited market definition that it still concluded that the merger of the only two satellite-radio companies was justified, although only under the various conditions it imposed to avoid "potential harms."

FCC chairman Kevin Martin said all along that the two companies had a high hurdle, but he suggested Monday that "with the essential voluntary commitments they have made, the parties have met this burden."

The conditions imposed include: 1) a 36-month rate freeze, with the companies allowed to pass along programming costs after the first year and with an option to modify or extend it; 2) a la carte offerings within three months; 3) a total of 24 channels set aside for use by outside programmers, including noncommercial use; 4) interoperable radios within nine months; and 5) releasing intellectual property that will allow outside manufacturers to produce receivers, including products that receive terrestrial digital-radio stations or are compatible with iPods or other devices.

The FCC also said that while it did not mandate the inclusion of terrestrial-radio receivers as a condition of the merger, it still had questions about the issue and would open a separate inquiry into whether it should be mandated.

The commission said it had concluded that its 1997 order creating the two licenses had indeed included a rule that the two not be owned by one company, but it said it was now officially repealing that rule.

"The commission found that the prohibition is a binding substantive rule, not a mere statement of policy. The commission can repeal a rule if it decides that doing so would serve the public interest and it complies with rulemaking procedures," the agency said. "For the same reasons it concluded that the grant of the merger, as conditioned, will serve the public interest, it concluded that repeal of the rule prohibiting the merger will, on balance, serve the public interest."

The FCC also reiterated that XM-Sirius cannot use its terrestrial repeaters to deliver local programming and advertising, nor can it enter into any exclusive sports deals that would prevent terrestrial broadcasters from carrying live local sports.

As part of the merger agreement, the FCC also approved a consent decree in which XM will pay $17.4 million and Sirius $2.2 million to the treasury and take other steps to resolve complaints about their terrestrial repeaters and FM modulators.

Democrat Michael Copps, who voted against the merger, said the FCC majority made its own case for opposing the merger, starting off with the conclusion that it was a merger to monopoly, as the National Association of Broadcasters consistently argued -- a case of allowing the only two companies in the relevant satellite-radio market to combine.

"The inescapable logic of the majority’s findings is that by 2011, satellite-radio subscribers will face monopoly price hikes by a company with the incentive and ability to impose them,” Copps said. “No one has been able to explain to me how this could possibly serve the public interest."

While some analysts were predicting last week that the deal did not make it easier for the two satellite-TV companies to merger, Copps wasn't so sure.

"The majority’s argument is that it can stack up enough ‘conditions’ on the merged entity -- spectrum set-asides, price controls, manufacturing mandates, etc. -- to tip the scale in favor of approval,” he said in his statement. "In essence, the majority asserts that satellite-radio consumers will be better served by a regulated monopoly than by marketplace competition. I thought that debate was settled, as did a unanimous commission in 2002, when it declined to approve the proposed merger between DirecTV and EchoStar [Communications]."

Not surprisingly, Martin gave XM/Sirius a particular shout-out for committing to a la carte programming, again working his way around to cable with the comment that "such a free market approach to programming -- whether it’s music or television -- would benefit consumers through lower prices and more control."

The Parents Television Council echoed Martin: "“We hope the XM/Sirius merger will prove to be a model for the cable and satellite television industries, which should also give real choices to their own customers who are deeply offended by many of the channels they are forced to buy just to get access to family programming," said PTC President Tim Winter. "We hope that a meaningful solution like this one will allow the video marketplace to decide for itself what programming it wants – and what it is willing to pay for.”