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A Done Deal: XM-Sirius Merger Wins Approval

FCC fines companies nearly $20 million as the price of approval

By Martin H. Bosworth and Truman Lewis
ConsumerAffairs.com

July 26, 2008

Republican Commissioner Deborah Taylor Tate removed the final obstacle to completing the deal when she agreed to vote in favor of it last night. To secure her vote, the companies voluntarily agreed to pay $19.7 million in fines for violating technical rules regarding the placement of booster antennas and the sale of overpowered radios.

The FCC ordered XM and Sirius to pay nearly $20 million in combined fines over technical problems with its radio towers that violated FCC regulations. XM was ordered to pay $17.5 million, while Sirius would pay $2.2 million. The fines were largely seen as a necessary technical detail in order to ensure the approval would go smoothly.

According to Martin, XM's fine was much higher due to the number of towers it had in operation that violated FCC broadcasting standards. Both companies said they would immediately bring their equipment into compliance.

FCC chair Kevin Martin, a Republican, had already announced his support for the merger in June after it was cleared to not violate antitrust law by the Department of Justice. Fellow Republican commissioner Robert McDowell also supported the merger, while Democratic commissioners Jonathan Adelstein and Michael Copps opposed it.

That left Tate as the decision-maker. According to sources close to the proceedings, Tate signaled her approval after adding conditions such as a faster rollout of radio receivers that could receive channels from both companies, as well as a three-year price freeze, and programming options that include "family-friendly" offerings and the ability to choose "a la carte" stations, rather than only being able to purchase package options.

Tate also reportedly supported provisions that would set aside channels for minority and woman-oriented programming, a condition supported by the Democratic commissioners.

Tate had originally wanted to fine both stations $8 million for the technical problems, but Martin ordered the fines increased.

The "a la carte" channel options, announced by Sirius CEO Mel Karmazin last year, were widely perceived by industry analysts as a method to win approval from Martin and the other Republicans on the commission. Martin has long championed "a la carte" programming for satellite radio and cable television, which enables subscribers to buy the channels they want rather than packages of channels, as a way to promote family-friendly programming.

Multiple consumer groups have opposed the merger on grounds that it would lead to a loss of competition and higher prices for consumers. The Attorneys General of eleven states also announced their opposition to the merger, claiming that the merged company would enjoy monopoly power over the satellite radio market, its incumbent advantages preventing challengers from giving listeners more options.

"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 when the opposition was announced. "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.

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