Mr. CONYERS. Thank you so much. Mr. Cooper, welcome. TESTIMONY OF MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA Mr. COOPER. Thank you, Mr. Chairman, Members of the Task Force. I appreciate the opportunity to testify on the proposed merger between XM and Sirius. Ms. Sohn wants to regulate the resulting monopoly. We haven't yet given up on competition. The merger of the only two satellite subscription radio companies should raise a red flag for both antitrust officials and communication regulators whose job it is to promote competition and consumer choice in the marketplace. Not only are XM and Sirius prohibited from merging as condition of their licenses, the growth of satellite subscription at very substantial monthly charges and consumer equipment costs over the past few years demonstrate that this is a service which in fact can be distinguished quite clearly from other things that are out there. We believe companies who seek to merge so soon after they came into existence after they promised not to merge, after they demonstrated that subscription can gain a significant audience, carry an enormous burden to show that regulators should abandon the normal rules of antitrust oversight to allow such a merger as this, a merger to monopoly. We remain unconvinced by the excuses we have heard to justify this merger. The product in geographic characteristics of satellite radio are easily identifiable. Satellite is national, mobile, and programmed. Those are the essential characteristics. You have added two more today, Mr. Chairman, or Ranking Minority Member. There are generally advertising-free and content-unrestricted. They have put products in the world that are require consumer purchases of large bundles of over 100 channels. The alternatives that the companies suggest or substitute do not possess these characteristics. This is a unique set of characteristics and further entry into this market is limited by the need to have a license to broadcast over a spectrum that can get the job done. There are only two such licenses. Consumer switching costs are substantial. This is a classic case of a distinct product with competitive problems. Two is not really enough for good competition. Remember, there is an expression in economics: Four is few, and six is many. We are talking about two and three in most cases these days. The track record of inter-modal competition disciplining competitive use is poor at best. Bank shot competition, where people compete indirectly with badly matched products, has not disciplined pricing abuse. I submit that cable TV is a perfect example where satellite and over-the-air have failed to protect the consumer from abuse. Head-to-head competition is what gets the job done. Intermodal competition is a very, very poor second best. The suggestion that free over-the-air radio will discipline price increases is ludicrous. They raised prices a few years ago by 30 percent. Free over-the-air didn't do it when they were competing head-to-head. What makes you think it is going to discipline prices when they aren't even competing head-to-head with well-matched products? Perhaps the most outlandish of all the claims being circulated by the merging parties is the argument that consumers will be better off with a benevolent monopolist than vigorous competitors. We reject that ultra-short-term view. In that view, competition is defined as wasteful since redundant facilities lie unutilized. Monopolists' claims to serve everyone while using fewer resources and promising not to abuse the resulting market power. Without the stick of competition, however, the costs savings simply will not be passed through to consumers and innovation will slow rather than speed up. It is competition that is the driver of innovation in our economy; competition is the best form of consumer protection. And head-to-head competition is the best form of competition. Offers of conditions on this merger really, we don't give much credence to. The recent track record of conditions on mergers has been abysmal and the satellite radio industry has already demonstrated that the promises and commitments it makes to interoperability, to noninterference, to nonuse of terrestrial repeaters, all shows that they will be difficult to oversee if we adopt that approach. So we are not talking conditions anymore. We want to give competition a chance. If the authorities change their mind, we will have plenty time to figure out what conditions should be imposed. Finally, a satellite radio merger to monopoly is to really about an avalanche of mergers. If the antitrust authorities in Federal communication oversight adopts such a loose definition of products and markets to allow a merger to monopoly on the basis of inter-modal competition, then a tsunami of mergers will ripple through the digital products space at the worst possible moment. From our point of view, there is a humongous hurdle that the merging parties have to overcome and they haven't even begun to put facts on the table that would lead us to believe there is any way to make this a socially responsible merger. Thank you. [The prepared statement of Mr. Cooper follows:] PREPARED STATEMENT OF MARK N. COOPER Consumers Nonprofit Publisher CFA Consumer Federation of America freepress STATEMENT OF DR. MARK N. COOPER DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA ON BEHALF OF THE CONSUMER FEDERATION OF AMERICA, CONSUMERS UNION, AND FREE PRESS ON COMPETITION AND THE FUTURE OF DIGITAL MUSIC BEFORE THE INTELLECTUAL PROPERTY TASK FORCE OF THE HOUSE JUDICIARY COMMITTEE FEBRUARY 28, 2007 Consumers Union,' Consumer Federation of America,' and Free Press' appreciate the opportunity to testify on the proposed merger between XM Radio and Sirius. The merger has profound short- and long-term implications for consumers and for antitrust policy as a whole. If this merger is approved by the Federal Communications Commission and the Department of Justice, the Committee should bar DOJ's door because there will be little justification for denying any future merger to monopoly in the entire communications/media product space. The proposed merger of the only two satellite subscription radio companies -- XM and Sirius Radio -- should raise a red flag for both antitrust officials and communications regulators whose job is to promote competition and consumer choice in the marketplacc. Not only were XM and Sirius prohibited from merging as a condition of getting their licenses to use the public airwaves to deliver their services, the enormous growth of satellite subscription radio service at very substantial monthly charges and consumer equipment costs over just a few years demonstrates that this service is, in fact a distinct product and could develop into a vibrant competitive market. CFA and CU believe the companies who seek to merge so soon after they began competing and offering consumers innovative new services; so soon after they demonstrated that subscription radio is attractive to consumers and could be much more Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the state of New York to Provide consumers with information, education and counsel about good, services, health and personal finance, and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports with more than 5 million paid circulation, regularly, carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union's publications carry no advertising and receive no commercial support. The Consumer l'ederation of America is the nation's largest consumer advocacy group, composed of over 280 state and local affiliates representing consumer, senior, citizen, low-income, labor, farm, public power an cooperative organizations, with more than 50 million individual members. 'Free Press is a national, nonpartisan organization with over 350,000 members working to increase informed public participation in crucial media and communications policy debates. so with consumer-friendly pricing; and in total disregard of the licensing conditions they accepted in order to use pubic resources carry an enormous burden to demonstrate why public officials should abandon all normal rules associated with competitive markets and spectrum licensing to allow this merger. CFA, CU, and Free Press have seen no evidence to support such a showing and therefore urge the DOJ and FCC to reject this merger unless and until XM and Sirius present clear-cut facts demonstrating how consumers will benefit from less satellite radio competition. This merger raises the most fundamental issues in antitrust and poses a substantial threat to consumers and competition. In order to cxcrcise their responsibility under the antitrust law, the federal agencies must start from the assumption that the XM-Sirius merger is a merger to monopoly - a merger between the only two firms in the market for national subscription radio service. The product and geographic market characteristics of satellite radio are easily identifiable and quite distinct from other mobile and stationary listening products. It is national, mobile, programmed radio entertainment. The two service deliver and require consumes to purchase huge bundles of well over 1000 channels. There are two, and only two, entities providing such a service. The alternatives the companies suggest are substitutes do not possess this set of characteristics and, therefore, cannot be said to compete directly with the service. Entry into this market is restricted by the need to have a license to broadcast at frequencies that enable the service to be provided nationwide. Consumer switching costs arc substantial. The original licenses were issued under strict conditions that the two entities are not allowed to merge. There is no circumstance more concerning from the point of view of the antitrust laws and the 1996 amendments to the Communications Act than a merger within a distinct product market that takes the number of competitors from two to 2 |