Senators Skeptical About Merits of XM-Sirius Merger

Sirius CEO Mel Karmazin vigorously defended the XM- Sirius merger under sometimes hostile questioning from members of the Senate Commerce Committee during a hearing Tues. Senators raised issues of localism and media concentration. Karmazin also faced questions about why Sirius and XM don’t already make available interoperable radios capable of handling both services.

Karmazin told the committee the merger would mean more choices for subscribers, with all premium offerings made available at “significantly less” than the $25.90 a subscriber would have to pay to sign up for both services.

“It’s been a long time since I've sat in a college economics class… but I don’t ever recall a lecture where less competition delivers more choice and lower prices,” said Sen. McCaskill (D-Mo.). “On its face, less competition does not lead to more choice and lower prices.” McCaskill questioned whether the satellite operators had lived up to obligations under their DARS licenses to put interoperable radios into the public’s hands. The failure of the companies to commercialize interoperable radios raises questions about the truthfulness of merger commitments, she said: “That makes me more than cynical and suspicious about the testimony you give about more choices and lower prices by lowering competition.”

Karmazin replied that Sirius and XM honored commitments to the FCC when they received the spectrum in 1997. “What we were asked to do was to develop an interoperable radio and we spent millions of dollars… on developing an interoperable radio,” he said: “It’s not a loophole. There was no obligation on our part to commercially market an interoperable radio. That’s for receiver manufacturers to do.” “There was not anything that said that said interoperable radios would be commonplace,” Karmazin added, pushed further by McCaskill. The rule says only that the operators would develop interoperable radios “and we have,” he said.

Members of the Commerce Committee. many of whom said they listen to satellite radio while at home in their states, expressed concerns about the merger. “I oppose the merger,” Sen. Dorgan (D-N.D.) said. “It will eliminate the competition that exists between the two separate companies and it will injure consumers. This isn’t even a close call.” Despite their market successes, “Sirius and XM now argue they should be permitted to merge into a single satellite radio provider -- a result that was explicitly prohibited when the FCC adopted service rules in 1997,” Dorgan said.

“Just on the surface, you talk about going from 2 to one,” said Sen. Thune (R-S.D.). “In a competitive market environment that’s an unusual circumstance. I think you can understand why it’s going to get a good deal of scrutiny.”

“The conclusion one draws is that it will be awfully good for the companies,” said Sen. Lautenberg (D-N.J.): “The question is is it as good for the consumers.”

Chmn. Inouye (D-Hawaii) said XM and Sirius ask regulators to hold they are part of a larger market that includes terrestrial radio and MP3 players, but “to merger opponents, these arguments ring hollow.” To merger enemies, “a satellite radio monopoly puts at risk the benefits of low prices and high quality services that only accrue from competing service providers,” Inouye said. As a merger condition, XM and Sirius have agreed to provide customers with a credit if they don’t want to receive adult content such as Howard Stern. Inouye pressed, but Karmazin wouldn’t say how much of a credit customers should expect each month. Several senators questioned whether the high amounts paid to some performers was a reason XM and Sirius need to merge.

Meanwhile, FCC Chmn. Martin told house lawmakers the merger faces a “high hurdle” to overcome if regulators are to approve it. The companies face specific challenges in its merger request because FCC rules prohibit one company from holding 2 licenses, which would be the case if the 2 merged, Martin said. The Commission also will be closely examining whether the merged company would be “taking something away” from customers. Since both are individually operating at capacity, he said, the question is how to provide something additional without taking away a service.