Sirius Satellite Radio has proposed to buy its chief rival, XM Satellite Radio in a proposed $5 billion transaction[1].  It is speculated that such a merger would reduce costs of operations for the two companies since they would have the opportunity to share resources, but how much and when, is still rather up in the air[2].  However, such a merger would also create a virtual, if not literal, satellite radio monopoly in the United States.  “The FCC shall have exclusive jurisdiction to regulate the provision of direct-to-home satellite services.[3]”  Digital Audio Radio Services (DARS) licensees, like other satellite licensees, are subject to rule 25.119, which prohibits transfers or assignments of licenses except upon application to the Commission and upon a finding by the Commission that the public interest would be served thereby[4].  Even after DARS licenses are granted, the language of the licenses for Sirius and XM stated that one licensee will not be permitted to acquire control of the other remaining satellite DARS license. This prohibition on transfer of control was thought to help assure sufficient continuing competition in the provision of satellite DARS service, such reasoning seems to persist today and further enforcement seems prudent.

The FCC’s Current Stance

            Federal Communications Commission chairman, Kevin Martin has spoken out against such a deal[5].  The companies are hoping to educate the FCC on the benefits of such a merger and are also pointing to the FCC’s recent approval of AT&T-BellSouth tie-up.  The Federal Communications Commission has, in the past, been heard to declare that they will not allow a merger between XM Satellite Radio and Sirius satellite radio.  Today however, with both of these companies before the House Panel[6], the possibility is being talk about more and more, despite the fact that they are the only two satellite radio providers in the United States.

Directv & Echostar

            The situation before us may be analogous to the proposed merger of DIRECTV and ECHOSTAR (responsible for Dishnetwork) which was before us a few years ago[7].    The FCC eventually denied this merger on the basis that such a merger would create a monopoly in the satellite television market and create a situation in which there would be no competition with the satellite companies in certain areas where terrestrial television and cable services are not available.  While this seems to be a mirror of the situation before us, the satellite radio companies propose that there is a reasonable amount of competition when podcasts and internet radio are taken into account.  The problem with this line of reasoning is that these are not necessarily competing markets; while the internet may provide an alternative means through which to get radio, the internet is loaded with all types of additional content that dramatically affect the value of such a service.  It seems unlikely that satellite radio and internet service will be in direct price competition because they are not in content or services competition.  Additionally, it seems unlikely that there will be ground service internet available in a place that has not even managed to acquire terrestrial radio towers.  Therefore, areas that are free from terrestrial radio have satellites as their only option, be it through satellite radio or satellite internet services for things like internet radio and podcasts.  These similarities are the reason for so many comparisons between the satellite radio market and the satellite TV market. So one could make the argument that the same barriers that thwarted an attempted 2002 merger between DIRECTV and ECHOSTAR would come into play with Sirius and XM Radio. 

Competition v. the Benefits of a Merger

            The importance of competition in the area of radio is the same as the large importance of news and information being available to people.  Radio is a “media of mass communications," which includes television, radio, cable television, multipoint distribution service, direct broadcast satellite service, and other services, the licensed facilities of which may be substantially devoted toward providing programming or other information services within the editorial control of the licensee[8].  47 USC §332(a)(3) encourages competition and providing services to the largest feasible number of users in the managing the spectrum for which they give license[9]. 

Monopolies are dangerous for consumers.  Consider for a moment the rolling electric blackouts of 2001 in California.  Services were down.   People were at the mercy of a company called Enron in the utility sector that monopolized[10].

            However, there is something to be said for the furtherance of a technology and availability of said technology to the consumer public.  Projections are that both XM and Sirius could save $5 or $6 billion dollars in expenses if the two companies were sharing costs of satellite launch, use and maintenance as well programming contracts for both the costs of exclusive and nonexclusive licenses. We’ve got to ask if the lack of competition is outweighed by the benefits of a merger.

            The two satellite companies will do very well to persuade the FCC that there are many more competitors.  This would give the appearance of less of a loss of competition and make the benefits of a merger have to way against far less, if anything. 

However, a merger that creates a satellite radio monopoly seems extreme.  There are alternatives available for the two companies to save money, for example - A private sector party may apply for a license to operate a private remote sensing space system which utilizes, on a space-available basis, a civilian United States Government satellite or vehicle as a platform for such system[11].  Additionally the two companies could work together on joint ventures without a complete merger.  It would require a much larger possibility of failure of the two corporations before we can begin to weigh the benefits of the merger so favorably as to outweigh competition loss. 

            Short of a demonstration of substantial radio competition throughout the United States, the FCC will most likely deny Sirius and XM radios’ request for a merger.