Sirius/XM Merger Again Takes Heavy Flak on Capitol Hill
Sirius CEO Mel Karmazin
WASHINGTON DC, March 22, 2007 - Satnews Daily - Sirius Satellite Radio, Inc. CEO Mel Karmazin again took the heat in Washington over his company’s merger with rival XM Satellite Radio Holdings last month.
The $13 billion merger, which has yet to be approved by the Federal Communications Commission (FCC) and the Department of Justice, has come under heavy fire from both houses of Congress, consumer groups and broadcast industry associations since it creates a de facto monopoly in the satellite radio industry.
Sen. Herb Kohl (D-Wis.), chairman of the Senate's antitrust subcommittee, said the proposed merger would create a business colossus that would raise prices for listeners.
"You have every right to ask ... but it's another thing to grant you that permission to be virtually unrivaled, unchallenged in this whole area," Kohl said.
Kohl questioned Karmazin’s statement that the combined company would face competition from terrestrial radio, MP3 players and Internet radio.
He also voiced concern that the combined company would raise prices in the future, particularly if it signed exclusive contracts with sports leagues or popular entertainment providers. Karmazin said he was open to regulatory oversight of price increases as a condition of the merger.
Sirius and XM were explicitly forbidden from merging when their licenses were granted a decade ago, but the companies are arguing that much has changed since then, and that the companies now face increased competition in audio entertainment from iPods and Internet radio, as well as traditional terrestrial radio.
In a new twist to its defense that the merger is not disallowed by law, Sirius and XM lawyers said in a new filing yesterday that the FCC’s language that "one licensee will not be permitted to acquire control of the other remaining satellite DARS license" was nonbinding because "this language was not codified in the Code of Federal Regulations."
"It is merely a policy statement reflecting the (FCC’s) view, based on the evidence available in 1997, that two satellite-radio licensees were needed to have enough competition in the audio-entertainment market. That statement does not preclude today’s (FCC), recognizing a radically altered competitive environment, from finding that the proposed transaction serves the public interest."
Also during the hearing, a group of six consumer and advocacy groups asked the Senate panel to call for a tough regulatory review of the transaction, which would eliminate one of the only two competitors in the emerging satellite radio business.
The statement from Consumers Union, the Consumer Federation of America and others said that the deal would reduce competition, decrease choices for consumers and might lead to higher prices.
Karmazin, however, disagreed with Kohl's contention that Sirius and XM would have monopoly power. He contended that traditional radio stations, iPods, cellphones and Internet radio provided enough choices for listeners.
"There is all this competition," Karmazin said. "We're not talking about being a monopoly."
He reiterated promises not to raise prices for an unspecified period after the merger for the $12.95-a-month programming packages subscribers now receive; and to offer a new package with the best of both companies' exclusive content for significantly less than the $25.90 a month it currently costs to subscribe to Sirius and XM.
Congress can't impose conditions on the merger, which must be approved by the Department of Justice and the FCC.
After the first hearing by a House antitrust task force last month, FCC Chairman Kevin Martin said Karmazin's initial price guarantees were confusing and publicly suggested that he clarify them.
Martin has said the proposed merger faced a "high" hurdle in gaining FCC approval. A commission rule to ensure competition prohibits the nation's only two satellite radio providers from merging, although the FCC can change it.
