Legislators Wonder What makes XM/Sirius so Special


The proponents of the XM/Sirius merger found an expert to support the case for allowing the transaction to go through in the person of Thomas Hazlett, who was once the Chief Economist for the FCC. The National Association of Broadcasters, unsurprisingly, takes exception. And a pair of key Congressmen, John Conyers (D-MI) and Steve Chabot (R-OH) wrote a letter that went to both Alberto Gonzales and Kevin Martin asking how this merger is any different than the EchoStar/DirecTV merger shot down in 2002.

The economist and the legislators agree on one key point – defining the marketplace is the key to analyzing the transaction. Hazlett argues that if satellite audio and AM-FM were not in competition, then why are they so strongly opposed to the merger? It the combined entities use monopoly status to drive up cost while cutting corners on quality, wouldn't that cut into the subscriber base and ultimately benefit "free" radio? His study says, "Since satellite radio first appeared on the scene, broadcasters consistently attempted to restrain this new service to protect their interests at the expense of market competition."

The NAB's response was swift. EVP Dennis Wharton said, "This report defies logic. The study's contention that consumers would benefit from a monopoly merger of the only two satellite radio services is laughable, as evidenced by the fact that Consumers Union and the Consumer Federation of America are opposing the merger."

In their letter, Conyers and Chabot reminded Gonzales and Martin that two DARS licenses were given out at the outset to assure competition. Noting the denied TV satellite merger, they ask, "Please explain how approval of this merger would be consistent or inconsistent with the finding in the EchoStar/DirecTV order."

SmartMedia observation: Broadcasters have been forced to "restrain this new service" to make sure that the two licensees did not encroach on broadcast territory in violation of their charters. That means keeping them away from local content. The satellite licenses were designed to have a national scope, while leaving local content to companies that have local staffing who will actually be around in a time of emergency, and who have some knowledge of local events, tastes, weather, traffic, etc. On top of that, the satcasters required somebody to police them as they played fast and loose with terrestrial repeater setting and receiver specs. We still find it difficult to believe that this proposed merger is going to make it anywhere near the finish line.