FCC Chairman: No Deal for XM, Sirius

Views a Merger Akin to Creating a Monopoly

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NEW YORK (AdAge.com) -- XM and Sirius satellite radio's proposed merger hit a roadblock yesterday when Federal Communications Commission Chairman Kevin Martin suggested at a press conference in Washington that their licenses would cause a monopoly.

"There's a prohibition on one entity owning both of those licenses," Mr. Martin told reporters.

Earlier precedent
The situation is similar to Echostar and DirecTV's failed attempt at a satellite TV merger, which was blocked by the FCC for the same license restrictions.

T. Barton Carter, a professor of communication and law at Boston University, said that in the earlier case, the key question had been whether the FCC's definition of competition included only direct broadcast satellite providers, in which case Echostar and DirecTV would create a monopoly, or whether it also included multichannel video programming, thereby including cable operators as direct rivals. According to Mr. Carter, the FCC has "chosen consistently to view each one as separate. As long as they define the market that's in competition as satellite radio, then by necessity it's anti-competitive."

However, if the FCC were to include all of terrestrial and high-definition radio as XM and Sirius' main competition, rather than only other satellite radio providers, a merger would be far more likely, Mr. Carter said.

Viewed as competitors
"Clearly, traditional broadcasters view satellite radio as a competitor, but FCC is viewing it as a separate entity. So [FCC's] concern would be you have one satellite radio company that can dictate prices or whatever they want. But the question is, if they jack the prices up, can the consumer in that case say. 'I'm going to local digital radio stations or internet radio or various other sustainable products.'"

Currently, enough competition remains between XM and Sirius for both companies to sustain healthy business until they can merge as one. Sirius, which launched months after XM, has seen a steady growth of subscriptions in the last three years and has nearly closed the gap in subscribers, with 6 million subscribers to XM's 7.6 million at the end of 2006. And an insider at one of the satellite radio companies noted that a change to their broadcasting licenses would mean a merger could then become possible.

Having a lock on automotive contracts in recent months has also helped the satellite radio industry increase its presence, Mr. Carter said. "People are becoming more aware of what [satellite radio] is. I wouldn't say unless the FCC allowed them to merge they're going to disappear."

A spokesman for Sirius could not be reached for comment, and an XM representative declined to comment.
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