James Delahunty
3 Apr 2008 0:34
The recent decision by antitrust regulators to approve the proposed merger of XM Satellite Radio and Sirius Satellite Radio in the United States has gained criticism due to its reasoning. In 1997, when the Federal Communications Commission (FCC) approved rules to create the new services, it insisted that both XM and Sirius certify that radio equipment can pick up signals from both providers.
"At the very least, consumers should be able to access the services from all licensed satellite DARS (digital audio radio service) systems and our rule on receiver inter-operability accomplishes this," the FCC's 1997 decision reads. While this rule aims to make it easier for a consumer to switch between services, no such interoperable radio equipment is readily available to consumers.
The important thing about this fact is that it was cited by the Justice Department as a reason to clear the merger. Basically, since the goal of making and selling interoperable equipment to consumers failed, the regulators found that both companies don't compete as much as previously thought.
Users of XM buy one type of radio and users of Sirius buy another, and automakers pre-install systems based on whichever company they have an exclusive contract with. Therefore, users of each service are unlikely to change to its competitor as it would need different equipment. Then, of course, there is also the claims from both providers that satellite radio has different competition in this decade including iPods and HD Radio.
"If the DOJ truly believes the failure to develop an inter-operable radio is diminishing competition between XM and Sirius, it should be promoting aggressive steps to market that inter-operable radio rather than allow the two companies to combine into a monopoly," Gene Kimmelman, vice president for federal and international affairs for Consumers Union, said.
Both companies did actually make an effort to develop interoperable equipment, but there are reasons why consumers didn't get offered any. The companies subsidize the cost of the equipment to keep prices down for subscribers, and so if an interoperable radio is more expensive, it is more expensive for them too. Additionally, it is unclear how subsidizing could remain fair in this case.
In other words, why would XM want to subsidize the cost of an interoperable radio for a consumer to subscribe to Sirius, and vice versa? The $5 billion buyout of XM by Sirius still needs approval from the Federal Communications Commission (FCC). In 1997, the FCC prohibited a possible merger of the companies but now both argue that the prohibition was a "policy statement" rather than a "binding commission rule."