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Reception Poor at Senate Sirius-XM Hearing

Senators See Deal Creating a "Fabulous Monopoly"

By Joseph S. Enoch
ConsumerAffairs.com Congressional Correspondent

March 20, 2006

• Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

The reception was poor once again today as Sirius CEO Mel Karmazin went before Congress to repeat his claim that a single satellite radio company would be more competitive than the two companies that now exist.

Not everyone bought the argument.

"While we do not doubt that this deal will be good for you and your shareholders, we have real worries that what may be a fabulous monopoly for you will be a bad deal for consumers," Senate Antitrust Subcommittee chair Herb Kohl (D-Wis.) told Karmazin.

Karmazin again argued that if the nation's two satellite radio stations -- XM and Sirius -- are allowed to merge, consumers will be offered more choices and lower prices.

Currently the two companies offer slightly varying services. For example, consumers who want to listen to both the National Football League and Major League Baseball must subscribe to both services and purchase two receivers.

That's because Sirius has an exclusive deal to broadcast NFL games and XM has an exclusive deal to broadcast MLB games. If the two were able to merge, a consumer would need only one subscription and one receiver, Karmazin said.

Consumers can expect lower prices because a merger would yield an a la carte package similar to what digital cable and satellite TV providers offers. Karmazin said a basic package would cost "maybe $8.95 or $9.95" per month compared to the $12.95 per month both services currently charge for all their available channels. He did not say why such packages are not offered today.

Karmazin said the merged companies would even consider being subject to Federal price controls on their monthly fees.

Other witnesses were less enthusiastic.

David Balto, who has practiced antitrust law for more than 20 years said, "It is only competition that can guarantee consumers the full range of benefits in low prices, better services and greater choice. Nothing can replace competition."

Even if there is a price freeze on the monthly fees, the companies could still raise their prices on equipment, Balto said. The equipment already costs $100-$550 for vehicles before installation. Balto also said that a merger would possibly halt technological innovation within the satellite industry because they would no longer need to compete with themselves for the best equipment.

However, Gigi Sohn, president of Public Knowledge, a digital culture advocacy group, said a stronger satellite radio company could be better for consumers who listen to AM and FM stations.

AM and FM stations have already lowered their minutes of commercials and come up with innovative broadcast technology such as high definition radio in order to compete with the existing satellite radio companies, Sohn said. A more powerful satellite radio company would force even greater advances for consumers of other products, she hypothesized.

Limited Spectrum

If the companies were allowed to merge, it would block all future competitors. There is only so much radio spectrum space available for this technology and currently the two companies have the licenses for all that spectrum.

Not everyone agrees with Karmazin's contention that the programming of the two services could be easily merged. Radio engineers say that the same spectrum limitations that prevent another company from competing also prevent a merged company from offering more choices on a single receiver.

Karmazin has said more than once in the past that current customers will not be forced to buy a new receiver, meaning that all the channels will be funneled into either the XM service or the Sirius service, depending on the customer's receiver. But currently, neither company has enough spectrum space to carry all of its own programming plus the other's programs without either requiring customers to get new receivers or using signal compression that would noticeably degrade the audio quality.

Senators at the hearing did not raise the subject of frequency limitations and Karmazin certainly didn't bring it up.

As he did three weeks ago at an earlier hearing, Karmazin bolted out a side door when he finished his testimony, avoiding waiting reporters.

The XM-Sirius merger must be approved by the Federal Communication Commission and might have to undergo scrutiny by the Federal Trade Commission as well as Congress.

Karmazin, a longtime radio executive, was paid about $3.5 million by Sirius last year and received nearly $60 million in stock options. He was a strong supporter of shock jock Howard Stern when both were at Viacom. Sirius is paying Stern $500 million over five years.

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