This past christmas, the wife was more than nice to me and gave me a SIRIUS satellite radio subscription with the necessary equipment. This, despite the fact that I was naughty in 2006. It turns out that there is talk of a possible merger between XM and SIRIUS. Both companies typically struggle for new subscribers until the holiday season and a merger would help them become more profitable and stable. On top of that, consumers would gain an incredible program as the stars of each system would be available to the other. XM listeners would get Howard Stern and I would get mlb sports, which I currently don't with SIRIUS. If satellite television is a precedent, then it looks like the merger won't go through.


(quote from the hyper-link above.)

Questions for debate:

1.)Given the fact that no other satellite radio company would be harmed, or claims to be harmed by a merger, would the FCC blocking of such a merger be an outright case of improper government interference?

2.)Given the fact that membership rates are fickle for both companies, how would a merger hurt consumer interests in any way? Please explain how price services would go up or how consumers would otherwise be specifically hurt.

3.)Should government regulation of mergers be changed? If so, how so?

1. There are other Satellite Radio companies they're just not terribly large. Even if there were no others a merger like this would seriously deter any thought of starting up another company. The FCC shouldn't be involved in this in any way. The only thing the FCC has done is force Sat Radio to change the way it broadcasts over FM for wireless reception to a radio. While it ticked me off I understand that that is well within the bounds of what the FCC does. Still the FCC should be completely abolished. It serves no purpose at all.

2. I don't think this is about hurting anyone. I don't think hurt is what the FCC is trying to avoid. This certainly isn't about price. If they price it wrong people will stop paying for it.

3. In the case of telecom, data/voice which provide essential services no. The Gov't should be looking to protect the US Consumer. In the case of fart jokes on a radio I have to pay for they should get out of the way BEFORE XM ends up out of business.

No this is exactly what the FCC should be doing.


It stands to reason that if ONE company replaces 2 then there is by definition no real competition. When that happens history tell us the price invariably goes up and innovation goes down. The bigger company is also better at squelshing new competition.


No it should be, if anything, strengthened. When liberals complain about “corporate abuse” this would be a perfect example. And this is exactly what the FCC has the power to stop and has. Good for them. When there are say 4-5 significant companies in the marketplace then consolidation is acceptable. But you would never, ever want to allow the two market leaders, with no real competition, to merge.

No this is what the FTC should be doing. The FCC was tasked with a really simple task and failed at it so badly that the offenders created technology to do the FCCs job for them.

1.)Given the fact that no other satellite radio company would be harmed, or claims to be harmed by a merger, would the FCC blocking of such a merger be an outright case of improper government interference?

Not with current antitrust legislation. Monopoly power is determined solely by market share (of which the combined companies would have nearly 100%), and is deemed detrimental by itself whether any actual harm has occurred or not. This is precisely why Microsoft was found in violation for bundling IE with its operating system. The reason for this being that you can't really know what a company might do once it has achieved monopoly power, or what the negative impact of that on the consumer might be. After all, companies can't use monopoly power until they have it.

2.)Given the fact that membership rates are fickle for both companies, how would a merger hurt consumer interests in any way? Please explain how price services would go up or how consumers would otherwise be specifically hurt.

Again, you can't know until after it's too late. Suppose the merger goes through. How can you know how many new companies aren't formed because they can't break into such a market against the monopoly power of the merged companies. Without that knowledge, how can you know how much lower prices might be if there were new companies competing for the business. Price services going up and consumers being specifically hurt is just inherenly assumed with monopoly power as it creates barriers to entry that allow such things to happen.

3.)Should government regulation of mergers be changed? If so, how so?

I don't think the regulation should be changed. However, in today's global and highly competetive marketplace, how those regulations are enforced should be carefully monitored. The main way this can be done is in how the market is determined when looking at monopoly power. In this case, is the market all radio broadcasts, or is it specifically satellite radio? If the former, it is a clear that a merger would produce a monopoly. If the latter, then a merger might be required in order for the companies to succeed. IMHO, the courts (even the Supreme Court) have a spotty history on this determination. It is the regulators that seem to have a more pragmatic and practical outlook. Personally, I think the proper market here is indeed all radio communication , and the merger should be allowed to go through. How do consumers view satellite radio if not as an alternative to regular radio? I think there should be provisions making it easier for competing companies to enter the market if they want to, such as allowing them to share the merged companies satellites.

I thought this was dead as a doornail, but I was very surprised to open my e-mail to find this message from the CEO of SIRIUS.




Having read some of the arguments above, I'd have to say that I don't agree with the assessments. I don't believe that comparing Microsoft to this case is legit as Microsoft was accused of having programs that worked to interfere with netscape and sun soft systems. Neither XM or SIRIUS have ever been accused of cornering the market for themselves or of interfering in some way with a competitor. Having most of the market, a new market at that, isn't necessarily a bad thing. And let's say that this company will have 100% viewership from their customers. How would the new company then block new rivals? Could it really interfere with satellite transmissions of their competitors and the like? In other industries, raw materials are required and in the past, companies could drive out competitors a number of ways. Even if we grabbed John D.Rockefeller and put him in charge of the new station, I doubt there is anything he could do.

This is viewing the competition test in a vacuum. The argument that I'm sure Sirius/XM will make is that their competition is with other entertainment/media mediums including, but not limited to: cable, analog radio, iPods/MP3-4 players, etc.

In making this argument, they may be adding evidence to their case by the RIAA regarding XM players ability to download music, but that's another beast altogether.

The case for the merger: Cable already has a market monopoly, ClearChannel darn near owns all local radio, why is this merger any more uncompetitive?

Bear in mind, I'm not in favor of the merger, as I dislike consolidation of media partners, but I don't think the merger will be struck down for these reasons.

I think they are thinking of the “car radio” part of the business which I believe is the source of most of the revenue to date. Now when you think of Sat radio for your car you have 2 choices. Cable cannot give you radio in a car.

That is accurate, but still too narrow. Bear in mind that both XM and Sirius also have a significant investment in business services (radio/music for the office), which does compete with cable. I won't deny its a smaller portion of their business than portable subscribers but still part of the equation.

Both cases show definitively that the market in question is NOT satellite radio, but rather a whole host of entertainment scenarios. However, as I stated above, our courts (especially) and regulatory agencies (some of the time) have a horrendous record of correctly defining the market. Essentially, common sense is often completely excluded from the issue.

FWIW...I am a new Sirius subscriber (haven't even set it up yet, had a problem with the unit), and am ambivalent about the merger. Having more programming would be good, but I clearly already decided the existing programming was sufficient. But, to me, the choice was about far more than which satellite radio company to choose, but rather which of several entertainment outlets met my needs. Satellite won out on that because I could get it to work in both the office and the car, and then I chose Sirius based on specific programming available (and also the hardware). I have heard in various financial programs that Sirius and XM need to merge to get sufficient customer base to compete against the other media outlets. Hopefully, that will be taken into consideration during the regulatory process--one of the reasons I waited was fear that either vendor I chose might go under. I have also heard that the FCC regulations covering satellite airspace currently specifically forbid a single vendor, so regardless of anything else, that regulation would need to be rewritten in order for this merger to be allowed.

I listened to a great broadcast on NPR about this that featured an interesting interview. Do check it out. Having had some more time to read about it and of course, listen to the NPR piece, another one of the FCC's possible argument against the merger falls apart. It is maintained that in the new company, the rates for subscriptions will go up. I disagree with this as executive have pointed out that they are competing against free downloading and other technologies that compete for the ear of consumers. On top of that, if the fees went up for consumers, the invisible hand of the economy would give the new company the backside real quick. Subscriptions would fall and then the company would definitely be in a pickle. I doubt they will go that route as I seriously doubt they want to alienate their listeners.

Yes, Sirius and XM, although they are in the bigger entertainment market, are the only two major companies offering satellite radio. If they merge its an instant monopoly, which will be worse for the consumers. I read that letter from the CEO to the Sirius subscribers, and he mentions a lot more channels. Did he mention a lot more price? That's exactly what would happen, you take the competition out of the market, the consumers suffer because the company can charge as high of prices as they want- theres no one out to beat them.

1.)Given the fact that no other satellite radio company would be harmed, or claims to be harmed by a merger, would the FCC blocking of such a merger be an outright case of improper government interference?

These are the only two major (consumer) digital satellite radio (DSR) companies. Merging them would create a virtual monopoly on DSR. The regulators would have to be convinced that the resultant company would not behave monopolistically, and could even make the merger contingent upont the point (that is, if antitrust violations were proven, the immediate remedy would be to split back into two companies).

2.)Given the fact that membership rates are fickle for both companies, how would a merger hurt consumer interests in any way? Please explain how price services would go up or how consumers would otherwise be specifically hurt.

It is possible that the DSR companies could interpret shrinking equipment purchases as an indication that the hardware market is near saturation, in which case lower-priced monthly fees will no longer attract new customers; therefore, the existing hardware creates a captive audience that might be willing to pay higher monthly rates. If so, the monthly rate could go up a dollar or two each year ($12-$24/year), because that would be the only way to achieve growth; without a competitor in the space, users who think they need the service would have no alternative than to accept the increases.

3.)Should government regulation of mergers be changed? If so, how so?

Antitrust regulation came about because it was necessary to keep the economy working the way it does today. Without antitrust regulation, government and society become beholden to monopolies, oligopolies, and others that can become as oppressive as any monarchy ever was. Furthermore, without antitrust regulation, our economy would certainly not grown so well over such a long period of time. Adjusting the rules here and there to fine-tune the system might be a good idea, but eliminating antitrust regulation would not be a very good idea.

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Here's how the DSR deal might play out...

The typical defense against monopoly allegations is to redefine the market broadly enough to include more potential competitors. DSR can do that pretty easily, with FM, AM, DTR (Digital Terrestrial Radio/IBOC), and HD Radio. They could also count some DSTV providers as competitors, due to the digital audio channels provided by most DSTV companies. They may try to count streaming Internet radio, podcasting, WiFi, EVDO, etc. I'm not sure this line of defense will work because it didn't for satellite TV. The FCC primarily identify monopolies by counting how many companies control specific ranges of airwaves serving the same purpose. Still, this defense offers the merger the most freedom, so it will probably be Plan A.

Another defense available to DSR is to try to claim they already have limited monopolies that are already regulated as such; thus the difference between one regulated monopoly and two limited monopolies is negligible. Why? Early on, the FCC decided not to promelgate a standard for DSR that would allow any reciever to work with any carrier (for example, allowing you to switch to XM without having to replace your Sirius equipment). As a result, there is only one carrier option for people who buy particular hardware, ergo limited monopolies. Even though this argument could work with some regulators, it probably wouldn't fly with the FCC. Furthermore, few companies want to confess they need to be treated as monopolies unless they have no other choice-- their current situation offers them more freedom than they would have with full monopoly status. So, I'll call this option Plan C.

Finally, the two companies could commit to a unified plan that would be so much better for consumers that regulators would have no way to argue that the merger goes against the public interest. Such a plan might be to offer nearly the same content on both networks, but to have XM be advertising-supported and Sirius be subscription-based with no ads. The hardware could be full price on XM and subsidized on Sirius. There could be no monthly fees for XM except for premium content, and some hybrid systems could allow easy switching between the two, so you could have ads on some stations and none on others, with a lower monthly fee. Currently, there's no way such arrangements can happen without a merger. Ad revenue fluctuates too much to cover DSR's narrow margins. Neither company can afford a high burn rate any more, so they need to find a sustainable business model. By having both ad revenue and subscription revenue, with some equipment sold full price and other equipment subsidized, the ecosystem can be self-healing. That's just an example pulled out of my ear-- the point being they could come up with some razzle-dazzle diversionary business plan to convince the regulators that approving the merger would be far better than not approving it. The problem is that it won't be easy to come up with a convincing plan without sharing proprietary information, and if the regulators make the merger contingent upon the success of the plan, the company would be locked in to persuing it. So, this option is somewhat more restrictive than Plan A and less restrictive than Plan C, so I'll call it Plan B.

There's been a lot of ink and bandwidth devoted to plan A, but not so much to plans B and C, probably because this merger is still in early stages. Don't be surprised if the deal gets rejected a few times on its way to finally being approved, because there's more than one way to push this merger through.

Yes, as I stated earler in the thread on this, our government has a long and glorious history of improperly defining the market in such cases. To arrive at the conclusions given here, the FCC is defining the market as those people wanting to purchase satellite radio. The reality, as you point out, is that satellite radio is just one of a variety of listening choices a consumer has, and the real market is much broader. In the real market, the combined company would have no power to raise prices, as consumers would simply use an alternative product or service (which is what defines that as the real market, btw). Even within the satellite radio market, were prices to go up, another satellite company could (and would) spring up to fill the consumer gap.

What the FCC is missing in their ruling is that the combined company would create a more powerful competitor to the other alternatives, causing them to improve their offerings. So, the people who will suffer from this are the consumers.

I disagree. The market is larger than just satellite radio services as Hobbes has mentioned. Both Sirius and XM are but two competitors in the whole audio broadcast/streaming market. Though it's cost to entry (using satellites) is much higher than terrestrial broadcast or internet streaming, this doesn't mean they are in a different market. Rather, it's a technological innovation to provide consistent services to a larger customer base.

I said it is part of the large audio/entertainment market. But within that market, one of the categories is satellite radio. It forms its own individual, although much smaller, market within a larger market. Cost isn't the issue here- its how the whole satellite radio was started- two major competitors. The majority of the customers, although a portion of the total income is from office, home, and business use, is from personal use. People already have radios in their cars, but to get satellite radio is different- you have to buy it. You look at the satellite provider choices and you have two. If those two turn into one then satellite radio as a single offer will be a competitor to other forms of audio entertainment, but as of now, we have a market of satellite radio with two companies, within the larger audio market.

In my opinion, satellite radio is a member of the broadcast/streaming audio market. In that domain, there are many choices. Both Sirius and XM or Sirius/XM must price their services to compete in this market; otherwise, customers will go elsewhere. Yes, satellite radio offers features that radio and internet audio streaming does not. However, these features do not of themselves create a significant differentiation to deserve their own market designation. Because of that, there would be little loss to the consumer (and arguably some gain) if a merger were to go forward. The other market players serve as a check, i.e. act as what they are -- the competition.

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One more thing to add. The best way to think of market differentiation is what the consumer actually gets out of it. In other words, the technology doesn't matter so much to the consumer but rather whether or not she receives the service/product she desires. In this case, the consumer wants direct wireless audio content: be it terrestrial broadcast, satellite broadcast or internet streaming. This is what matters. The technology used to deliver this service is somewhat immaterial.