XM-Sirius Post Mortem

FCC

After 18 months of waiting and speculation, the FCC late Friday evening approved the merger of XM Satellite Radio and Sirius Satellite Radio. While we still don’t have all the exact details (the Commission released only a detailed press release on Monday), it appears that all of Public Knowledge’s conditions were adopted in whole or in part. To review, those conditions were:

a la carte or tiered pricing choices;

• a three year price freeze for its combined programming package;

• a 5% set-aside of capacity for non-commercial educational and informational programming;

• a requirement that the new company make the technical specifications of its devices and network open and available to allow device manufacturers to develop, and consumers to use, any device they choose without interference.

The set-aside condition will fall somewhat short to the extent that the Commission will only require the set-aside to be 4% of “full-time audio channels,” as opposed to 5% of the entire capacity of the spectrum. This allows the combined company to reduce its obligation by using increasing amounts of its capacity of video and data. On the other hand, the Commission did promote more diversity of programming on the set-aside by limiting channels on the set-aside to one per programmer.

The “open device” condition, which purports to permit any manufacturer to make a satellite radio device, is more of a mystery. As we wrote previously, the company’s initial “concession” on this point was riddled with exceptions: for example, the company wanted a one year moratorium on making their specifications available to device manufacturers and wanted to subject devices to the company’s approval. A last-minute supplemental letter from the companies adding more concessions and clarifying others makes it clear that the moratorium was eliminated; whether the approval process was also eliminated is not so clear.

While the Commission failed to require the appointment of a “monitor trustee” or corporate compliance officer to ensure that the company abides by its concessions, the agency took pains to make clear that they are “fully enforceable by the Commission.” I hope the Commission will do a better and quicker job of enforcing these conditions than they did acting on the numerous allegations of violations by the companies of the Commission’s rules on FM modulators and terrestrial repeaters. At Commissioner Tate’s urging, the Commission finally settled those claims by fining the companies nearly $20 million.

So basically, it’s over. And I am very happy for that. Throughout this process, it has been a mystery to me how such a relatively small merger could garner so much attention and take so much time. Rarely a week has gone by over the past 6 months where I haven’t gotten multiple calls and emails from analysts, investor, lawyers and reporters wanting to know what I knew about the progress of the proceeding and what I thought was going to happen.

Why the fascination and the delay? Well certainly, the time and resources the broadcast industry put into opposing the merger had a good deal to do with it. So did the general antipathy on Capitol Hill and the FCC for media mergers of any kind, no matter what the size (interesting that this antipathy doesn’t seem to apply to mergers of telephone or wireless companies). It seemed to me that this merger had no real champions other than the parties themselves – reliable sources told me that the Bush Administration did not weigh in, and other than a handful of Congressmen from New York, Hill leaders were either opposed or neutral.

On balance, I think this was the right decision – two weak (albeit not failing) companies combined will be better able to compete in a national radio landscape that is only growing. The conditions, provided they are adequately enforced, will protect the 5% of listeners that receive the service. And the decision will have little or no precedential value for efforts to increase media concentration on the local level.

Of course, in the wake of this decision, there is now a lot of chatter about direct broadcast satellite providers DirecTV and Echostar merging. Don’t ask.

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