Editorial: Monopoly? It’s Not So Simple

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  Space News Business

Editorial: Monopoly? It’s Not So Simple

posted: 01 March 2007
12:35 pm ET


The space industry obviously will be watching with more than a passing interest as the U.S. Department of Justice and Federal Communications Commission (FCC) consider the merger that would create a domestic monopoly in satellite radio.

Sirius Satellite Radio and its rival, XM Satellite Radio, have been important consumers of space-related goods and services over the last decade. Meanwhile — although there are no statistics to prove this — space professionals, being a technologically inclined group, are probably more likely to be satellite radio subscribers than the population at large.

Some in the industry might be wary of the merger, reasoning that one less satellite radio company means one less customer for their wares. This certainly is true, although both Sirius and XM, even if allowed to unite, will have to continue operating their separate systems far into the foreseeable future to avoid service disruptions.

Of course, that view assumes both Sirius and XM could survive in the long run as separate companies. That’s a very big if given the rapid emergence of competing media and the billions of dollars both companies need to spend to keep growing their base of subscribers.

This is an important factor U.S. regulators should consider in deciding whether the combination of Sirius and XM is in the public’s interest. Competition is always preferable to monopoly, but regulators can hardly force a company to stay in business if it cannot make money.

Sirius and XM executives are under no illusions about the regulatory challenge their proposed merger faces. FCC Chairman Kevin Martin drove home that message in a statement Feb. 20, saying the hurdle for approval would be high since regulations issued in 1997 bar one company from holding the only two U.S. satellite radio licenses. “The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices,” he added.

Sirius Chief Executive Mel Karmazin and XM Chairman Gary Parsons presented their case in a conference call Feb. 20, arguing that the merged company will give consumers more choices, spur technological innovation and not result in higher prices. Anti-trust authorities will and should always view such boilerplate claims with skepticism, since monopolies tend to do just the opposite.

However, one must subscribe to a narrow and simplistic definition of the market in which Sirius and XM operate to characterize their combination as a monopoly. In one sense it would, inasmuch as they are the only companies that use satellites to deliver radio programming in the United States. But if one takes the larger view of the market, satellite radio has plenty of competition. There are traditional radio and new high-definition radio broadcasters that offer over-the-air programming free of charge. There also are cable-based radio stations, Internet media outlets and a host of portable entertainment devices ranging from iPods to cellular phones. All compete for the same prize: the ears of consumers.

In blocking the merger of DirecTV and EchoStar — the dominant U.S. satellite television providers — in 2004, the FCC rejected this line of reasoning. But satellite radio and satellite television are not analogous. The vast majority of U.S. consumers pay for television, whether delivered by cable or satellite, and for many rural households, cable is not an option. Conversely, access to terrestrial radio is free and universal, while only a small fraction of consumers pay for satellite radio.

The FCC, the Justice Department and Congress undoubtedly will hear from consumer groups and representatives of terrestrially based media who are opposed to the deal. On Feb. 19, the day the Sirius-XM merger agreement was announced, the National Association of Broadcasters (NAB), which represents traditional TV and radio interests and has a history of antagonism toward satellite radio, came out swinging. In what can best be described as a broadside, NAB Executive Vice President Dennis Wharton called the proposed merger “anti-consumer” and said the government must “weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming.”

Interestingly, the NAB never had a problem with the sweeping consolidation of U.S. media ownership that has robbed local radio of its diversity and opened the door for satellite radio in the first place; nor was it so offended by Mr. Stern’s antics when the shock jock was raking in millions in advertising dollars for traditional broadcast radio rather than for Sirius.

The concerns of consumer groups that a Sirius-XM merger would lead to fewer choices and higher prices are harder to dismiss, notwithstanding the fact that even a monopoly satellite radio provider seeking to expand its market share would have every incentive to keep prices down, offer the widest possible variety in programming and continuously introduce new devices and technology to enhance the listener experience.

U.S. regulators could add another layer of protection by imposing safeguards against precipitous and unwarranted price increases. In the end, however, they should approve this merger. It will take some courage, but sanctioning this marriage would rightfully acknowledge the reality that media technologies are converging at breakneck speed — and demonstrate that the government is at least trying to adapt.