Interoperable Radio Questions Emerge as XM-Sirius Merger Issue

The failure of XM and Sirius to offer radios that can be used with both services is being pointed to by consumer groups and other merger opponents as a reason the satellite radio operators can’t be trusted to keep commitments to consumers that they make to secure merger approval. The issue got some play at a Senate hearing Tues. (CD April 18 p6). Sources said Wed. they expect the lack of commercially available interoperable radios to emerge as a bigger issue as regulators look more closely at whether to give their blessing to the merger.

“Despite requirements by the FCC and the terms of their own patent dispute settlement to develop and provide interoperable radios that would have allowed consumers to switch providers without switching equipment, the companies have failed to meet that commitment,” consumer groups Common Cause, Consumers Union, the Consumer Federation of America, Free Press and the Media Access Project (MAP) said in written testimony to the Senate Commerce Committee. “Claims by XM and Sirius that they were required only to ‘develop’ the radio, but not to take steps to ensure it was commercially available provides little comfort to consumers denied greater switching choice nor should it ease criticism that these parties sought to comply with only the narrowest interpretation of the commitment.”

The groups said this narrow interpretation of the interoperable radio requirements should lead regulators to view merger commitments with a jaundiced eye: “Today, we are asked to recognize choice benefits of a merger between two parties who have made concerted decisions to deny consumers choice that would otherwise have been available.”

“It really goes to the issue of their sincerity about competition,” MAP Senior Vp Harold Feld told us Wed.: “There was a procompetitive license condition that they failed to implement. It makes a very clear statement about their willingness to compete vigorously… To the extent that some subscription radio competitor emerges, through some different spectrum, or through some sort of forced divestiture of this spectrum… there would be a need to have some kind of interoperable radio to overcome the advantages that the incumbent would have.”

Scott Cleland, chmn. of NetCompetition.org, said the questions about interoperable radios are evidence that the merger is in trouble. “When people say they've got an uphill fight, they've got a cliff to climb… and this is one of the outcroppings on the cliff,” he said. “A merger like this shouldn’t require consumers to do backflips, to give the companies an advantage,” Cleland added: “There is a pretty big hassle factor for consumers. You don’t want to overly burden the 14 million users of these radios. The question is, if you allow these companies to merge what does it mean for equipment and people having to go into the shop to get something new put in?”

Analyst Tim Farrar said he expects deadlines for radios to be interoperable in any merger order. “I think the vulnerability is perhaps on the question of did they keep their promises that they were going to deliver these radios, which was part of the original licensing,” he said.

Asked for comment, Sirius cited comments during Wed.’s hearing by CEO Mel Karmazin defending the company on its development of interoperable radios.

Meanwhile, in a broadside delivered Wed., XM-Sirius said NAB opposition to their merger is just the latest in a long line of fights NAB has entered against another group offering competition to broadcasters.

“For over twenty-five years, the NAB has objected to the evolution of communications technology, including satellite television, ‘drop in’ radio stations, low-power radio and low-power TV band devices,” the satellite radio operators said. “The NAB’s public opposition to the Sirius-XM merger is an effort to advance its members’ interests under the guise of consumer rights. The organization’s opposition to the transaction is not indicative of the value of the transaction itself, but rather is symptomatic of the NAB’s conservativeness, self-interest and consequent hostility toward new technology.”

XM-Sirius said NAB opposed the development of satellite radio from the start, “asserting that it would destroy” local radio. “The radio industry’s evidence was embarrassingly thin ranging from studies that assumed satellite radios would be free, claiming that a temporary revenue fall-off during a recession was indicative of the declining fortunes of terrestrial broadcasters, to a survey of radio station executives, each of whom claimed that satellite radio would be the death of localism,” the companies said.