remote areas. Id. Unlike even the most powerful terrestrial radio stations, which can still only reach a mere fraction of American consumers, satellite radio service can reach all listeners across the country with vastly more channels than any single terrestrial broadcaster. Other media industry observers have agreed that “[s]atellite radio is a national platform," thereby clearly differing from locally-licensed and locally-oriented terrestrial broadcast stations." Simply put, only XM and Sirius compete in this national, multichannel mobile radio market, and they are proposing to form a state-sanctioned monopoly in that market. XM AND SIRUIS WILL BE ABLE TO EXERCISE UNLIMITED MARKET My training as an economist tells me that XM and Sirius are acting like classic market players. Adam Smith noted in The Wealth of Nations over 230 years ago that all companies work toward monopoly. From a company perspective, monopoly is desirable: it allows the company to achieve market power and gives them the ability to set prices unilaterally and act as a gatekeeper without any reasonable competitive check. More specifically here, having monopoly status would enable the united XM and Sirius to stop agreeing to pay outrageous talent salaries and to exert greater pressure on programming suppliers. Eliminating competition in the national mobile radio market through this proposed merger would also greatly reduce incentives for the combined XM and Sirius to innovate. A monopolistic market structure is inevitably less innovative than 6 Katy Bachman, Buyers: Size Not Enough for Sirius/XM Merger, Media Week (Feb. 26, 2007) (quoting Matt Feinberg, Senior Vice President of Zenith Media). a competitive one, and the consumers of satellite radio services will accordingly fail to benefit from innovations such as improved programming services and technical improvements. In fact, when declining to approve the EchoStar/DirecTV merger, the FCC specifically found that the satellite television merger “would likely reduce innovation and service quality." EchoStar/DirecTV Merger Order, 17 FCC Rcd at 20626. Perhaps most obviously, enjoying monopoly status would permit a merged XM/Sirius to raise subscription prices without any competitive check on its actions. The complete elimination of competition in the marketplace for nationwide, multichannel mobile radio services would remove competitive pressure on rates and almost inevitably result in rate increases for consumers. For example, the FCC recently determined that cable television rates have increased by 93% since enactment of the 1996 7 Telecommunications Act. The agency has attributed this tremendous increase to the lack of competition from a second cable operator in most communities. Interestingly, the FCC also concluded that competition from DBS has had minimal effect on cable prices, finding that only the presence of a similarly-situated, directly competing cable operator worked to constrain cable prices. The analogy to the XM/Sirius merger is unmistakable. Without the presence of a direct competitor, a satellite radio monopolist could raise rates freely. Indeed, the courts have enjoined mergers to monopoly on the grounds that such mergers would allow the 7 See Report on Cable Industry Prices, MM Docket No. 92-266 (rel. Dec. 27, 2006). combined company "to increase prices or otherwise maintain prices at an anticompetitive level "8 To again look to the wisdom of Adam Smith, the "price of monopoly is upon every occasion the highest which can be got." Beyond resulting in rate increases for consumers, the XM/Sirius monopoly would also likely reduce program diversity. As explained by the Commission when authorizing XM and Sirius, competing satellite radio providers would each have incentives to diversify their own program formats, thus providing valuable niche programming. See Satellite DARS Report & Order, 12 FCC Rcd at 5762. Without such competition, program diversity would likely be adversely affected, with consumers losing music and talk formats, especially niche ones. Of course, there is also the very real risk that a combined XM/Sirius will use its market power to force content providers like sports programmers to deal only with them. If the merger is approved, it may only be a matter of time before the American public can listen to their favorite baseball or college football team by paying whatever monopoly rents a combined XM/Sirius chooses to charge. We've seen it happen with cable, and given the obvious incentives, there is every reason to expect the same thing to happen here. In sum, in a monopoly environment, satellite radio subscribers would pay higher prices for less diverse and less innovative programming. * FTC v. Staples, 970 F. Supp. 1066, 1081-82 (D.D.C. 1997). XM/SIRIUS HAVE A LONG TRACK RECORD OF BREAKING THE RULES The government cannot and should not rely on any promises that a united XM and Sirius, as a government sanctioned monopoly, will not cause harm to consumers. Their past behavior in a number of instances shows otherwise. First, both companies have violated an FCC rule on receiver interoperability. Despite a clear FCC directive that their satellite radio systems must include “a receiver that will permit end users to access all licensed satellite DARS systems that are operational or under construction," neither XM nor Sirius markets such a consumerfriendly device. And, while both companies certified nearly 10 years ago that they would comply with this pro-competition, pro-consumer requirement, they have not done so. Instead, the companies contend that they are technically complying by "jointly developing" a common receiver platform while making no apparent effort to make the device a reality. In carefully worded SEC filings, the companies report that technology for a unified receiver standard "is being developed" but "we have no assurances that any manufacturer will build ... such dual-mode radios."10 Thus, the companies have undermined the efficacy of this FCC rule designed to "promote competition by reducing transaction costs and enhancing consumers' ability to switch between competing DARS providers." Satellite DARS Report & Order, 12 FCC Rcd at 5796. 947 C.F.R. § 25.144(a)(3)(ii). 10 See Sirius Satellite Radio Inc. SEC Form 10-K at 9 (March 13, 2006); XM Satellite Radio Holdings Inc. SEC Form 10-K at 11 (March 3, 2006). Second, with similar disregard for consumer interests, both XM and Sirius have violated FCC Part 15 rules, which govern the production and distribution of their receiver equipment." These rules are designed to ensure, among other things, that equipment such as satellite radio receivers do not interfere with broadcast radio stations or other licensed spectrum users. As a result of XM and Sirius producing and distributing receiver equipment that violates - and in a number of cases very greatly exceeds - FCC limits on the power levels for such equipment, many listeners to terrestrial radio stations experience "bleedthrough" and receive the XM or Sirius signal without warning through their radios. As has been widely reported, the FCC has received many complaints from both commercial and non-commercial listeners who suddenly hear uncensored and 12 unwelcome satellite radio programming on their car radios." That's why NAB has been calling on XM and Sirius for months to do the right thing, and recall the hundreds of thousands of satellite radio receivers in the market that continue to interfere with free over-the-air radio broadcasts. Third, both XM and Sirius routinely and regularly violate FCC technical rules. In particular, these companies have admittedly violated FCC rules in connection with their special temporary authority to use terrestrial repeaters. For years XM operated more than 142 repeaters (or 18 percent of all its repeaters) at unauthorized locations and at least 19 of its repeaters without any FCC authorization at all. Even after confessing and seeking the FCC's forgiveness for its violations, XM to our knowledge currently continues to 12 47 C.F.R. Part 15. See, e.g., "A Mystery Heard on Radio: It's Stern's Show, No Charge," New York Times, January 26, 2007 at A17. |