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Consumer Groups Urge FCC to Reject XM-Sirius Merger

Justice Department rubber-stamped the deal in March

May 13, 2008 

The Department of Justice signed off on the deal without attaching any conditions.

In March, consumer groups criticized that decision as fundamentally flawed and called on the FCC to deny the transfer of the licenses to use the spectrum that XM and Sirius hold, which would effectively kill the merger.

"The Justice Department tossed all tenets of antitrust out the window in its rush to rubber stamp this merger-to-monopoly," said Mark Cooper, director of research for the Consumer Federation of America.

"The FCC should not buy into the flawed reasoning that led to the DOJ's disastrous decision. Consumers are depending on the commission to stop this dangerous deal dead in its tracks," he said.

The Justice Department based its merger approval on the conclusion that satellite radio is part of a larger audio market.

However, consumer groups -- using the FCC's own data on radio stations -- have argued that satellite radio and terrestrial radio are not close substitutes. The groups argue that satellite radio represents a unique consumer product that does not compete with iTunes or Internet radio.

"Protecting consumers should be the FCC's first priority," said Chris Murray, senior counsel of Consumers Union. "Allowing one company to monopolize the satellite radio industry would leave consumers with higher prices and fewer choices but no real benefits. Rejecting this deal should be a no-brainer."

The consumer groups' filing contends that the DOJ analysis ignores many aspects of competition between XM and Sirius that promote the public interest. In its analysis, the DOJ concedes that XM and Sirius:

• Did compete to sign automakers to long-term contracts and continue to do so when those contracts expire;

• Do compete for a great deal of programming, music, niche news and talk;

• Do compete for marquee programming;

• Do compete in retail distribution; and

• Would have competed more if they had kept their promise to deliver an interoperable radio.

As a consequence, permitting the two satellite radio companies to join would have many negative side effects -- both for consumers and for the satellite radio industry, the groups charged.

For consumers, the merger would reduce the number of channels and formats available and result in fewer cost-saving incentives. The loss of competition in the industry would also cause a dramatic drop in spending on talent.

"By approving this monopoly deal, the Justice Department has failed as the public's corporate watchdog," said S. Derek Turner, research director of Free Press. "Now it's up to the FCC to safeguard consumers and promote competition on our public airwaves."

States oppose merger

Earlier, eleven states called on the Federal Communications Commission (FCC) to consider blocking the proposed merger of the nation's only two satellite radio companies, saying the deal would create an illegal monopoly.

"A merger of XM Radio and Sirius radio meets the textbook definition of monopoly: a product controlled by one party," said Connecticut Attorney General Richard Blumenthal. "The Justice Department's inaction regarding this combination defies law, reason and common sense. Even a child understands that owning every property from Baltic Avenue to Boardwalk is a monopoly.

"This monopoly-making merger will leave Connecticut consumers at the mercy of a single company, leading to skyrocketing prices and diminished service. Customers unhappy with their service will have nowhere to go. The Justice Department's message to satellite radio consumers: Go pound sand.

Among the opponents is the state of Wisconsin, whose attorney general, J.B. Van Hollen, said the proposed merger is anti-competitive and anti-consumer. He said its impacts will be felt in Wisconsin, particularly in rural communities, where he predicts a significant reduction in the availability of sports and other programming.

“The proposed merger would eliminate competition in the satellite radio industry and the combined XM-Sirius companies would be free to raise prices, stifle innovation, and reduce program diversity,” Van Hollen said late last year, when he wrote to Barnett asking that the merger be blocked.

The Justice Department said last week that the combined satellite company won't be able to raise prices excessively because of competition from other entertainment media, including broadcast radio and MP3 players.

There wasn't enough evidence the merger "would substantially lessen competition or harm consumers," Justice antitrust chief Thomas Barnett said.

FCC weighing its options

FCC Chairman Kevin Martin has said the agency is close to a decision and said the FCC staff has been instructed to draft "various options."

The deal has come under fire from critics who say it would reduce competition. The critics have also questioned whether existing receivers will be able to receive what proponents have said will be greatly expanded programming options.

The proposed merger got a boost last September when former Federal Communications Commission chairman Mark Fowler said the deal would enhance competition. His comments came in a column in the New York Sun, whose parent company, Hearst Corporation, owns a stake in XM.

"In spite of the fact that satellite radio constitutes only 3.4 percent of radio listening today, traditional over-the-air radio operators have understood the potential threat and have had no choice but to compete, and have been dragged, albeit kicking and screaming, into the digital age," Fowler wrote.

The main argument that may prevent the current commissioners from allowing the merger is that it would create what critics say would be a monopoly. The National Association of Broadcasters (NAB), an industry group that lobbies on behalf of terrestrial radio broadcasters, has been by far the most vehement opponent.

"The national satellite radio market currently is a two-company duopoly trying to become a government-sanctioned monopoly," NAB president and chief executive officer David Rehr said at a House hearing in March. "The fact is, this monopoly would reduce innovation for services and equipment for consumers since there will be no competition in their defined market."

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