Sirius won’t obey FCC compatibility rule unless merger is approved


Sirius and XM grabbed headlines earlier this month by promising to offer lower-priced packages and eventually a la carte channel buying if their proposed merger is allowed to go through (7/24/07 RBR #143). In his quarterly conference call with Wall Street analysts yesterday, Sirius CEO Mel Karmazin was again touting the proposal as “more choices and lower prices” for consumers to bolster the case for allowing the only two satellite radio companies that exist to become one. Never mind that most of those things could be implemented today without a merger – and all could be if the two companies were in compliance with the FCC rule that requires them to have compatible receivers. But more on that in a moment. Lots of public comments on the proposed merger have been filed at the FCC and Karmazin gave analysts an update on the less-public process of the Antitrust Division of the Department of Justice, saying Sirius expects to provide all of the data sought in DOJ’s second request by the end of summer.

If the regulatory approvals are forthcoming and the merger closes by the end of this year, Karmazin said Sirius/XM should be able to offer its lower cost packages by around Fathers Day and graduation time (“dads and grads” sales) in 2008, with a la carte offerings, which require a combined chipset, by the Christmas sales season. Then Sirius President of Operations and Sales Jim Meyer made this astounding statement: “I think you need to be careful. It’s not a given that we need an integrated chipset to offer any of the things that Mel has talked about. I want to reiterate what Mel said. The packages will be available by Fathers Day of next year. More importantly, they will be retroactive to virtually all of the products that are in the field. So there is not a risk of obsolescence with any of those. And then the a la carte will take more work and will require a new radio which will be in the market to support the Christmas selling season next year. That said, if the merger goes through I’m very positive that we will very, very aggressively go after an integrated chipset. The timing of that chipset is probably somewhere between one year and two and a half years, depending on what we decide to feature in it, and we won’t be able to begin that work until it’s clear that the merger’s approved.”

RBR observation: How’s that? From the very beginning, XM and Sirius were required by the FCC rules creating the satellite radio service to have mutually compatible receivers – a legal requirement that both companies blithely ignored when they launched with proprietary systems. Since then, and long before any merger was proposed, they have repeatedly told the FCC that they have been working to come into compliance with the compatibility requirement. But now Sirius is saying that it isn’t going to go ahead with the compatible chipset unless the merger is approved. Can you imagine what would happen to an AM, FM or TV broadcaster who openly violated FCC rules in such a manner? There would almost certainly be huge fines assessed and perhaps even a license revocation hearing. Why isn’t that happening here?