Sirius; XM; Merger

Cable TV and the Internet are buzzing with the news of the Sirius and XM satellite radio networks' intention to merge.

The [New York Post] said the two companies were negotiating over the weekend to merge, a deal expected to be structured as a "merger of equals."

Representatives of the two companies could not immediately be reached for comment.

After months of speculation, chatter has escalated about a possible deal. Sirius and XM are adding subscribers rapidly to their pay-radio services, but losing money as they try to improve technology and sign top entertainment ranging from the largest U.S. sports leagues to media celebrities such as Howard Stern, Oprah Winfrey and Martha Stewart.

Annoyingly, none of the stories I have seen or heard has mentioned Air America Radio on XM (grumble).

At any rate, the Reuters story gets around to mentioning the real issue in its fourth paragraph: the regulatory hurdles this proposed deal will have to jump before becoming reality.

A deal would face tough scrutiny from U.S. regulators. It probably would face stiff opposition from the National Association of Broadcasters, which represents local radio stations and is one of the most powerful lobbying groups in Washington.

Federal licenses for the satellite services prohibit one entity from owning them. However, Federal Communications Commission Chairman Kevin Martin has said the licenses could be altered, if requested.

A merger also would require approval from U.S. antitrust authorities.

Indeed it would. Any merger of Sirius and XM would create a literal monopoly on satellite radio service, and could be seen very easily as a disadvantage for consumers.

In fact, a similar proposed merger, that of DishNetwork and DirecTV was rejected by the FCC in 2002 largely on those very grounds:

Chairman Michael Powell wrote in his statement that "The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly. This flies in the face of three decades of communications policy that has sought ways to eliminate the need for regulation by fostering greater competition."

Powell added that "The record before us irrefutably demonstrates that the proposed merger would eliminate an existing viable competitor in every market in the country. The case against approving the transfer application is particularly compelling with respect to residents of rural America who are not served by any cable operator. Those Americans would be left with only one choice for their subscription video service, now and in the foreseeable future. But that alone is not the cornerstone of our decision. At best, this merger would create a duopoly in areas served by cable; at worst it would create a merger to monopoly in unserved areas."

Commissioner Kathleen Abernathy wrote in her statement that "this proposed merger will likely harm consumers by eliminating a viable competitor in every market, driving up prices, and decreasing innovation and quality of service."

Commissioner Michael Copps wrote in his statement that "it would be an enormous risk to approve a transaction that results, at best, in the merger of a duopoly into a monopoly in a critical sector of multi channel video programming."

Commissioner Kevin Martin wrote in his statement that "I believe EchoStar currently is violating the must carry provisions of the Satellite Home Viewer Improvement Act (``SHVIA´´) and FCC rules by placing some broadcasters' signals on a second dish. I continue to be concerned about the burden this practice places on consumers and the impact this discrimination may have on some broadcasters -- particularly public broadcasters. I therefore dissent in part, on the majority's decision not to include EchoStar’s compliance with its must carry obligations among those issues designated for hearing."

Of the commissioners who rejected the satellite TV merger, Michael Copps and Kevin Martin remain on the commission, although Martin's comments so far have focused on the legality of the proposed merger, considering the prohibition contained in the law governing the satellite radio business. It is difficult to imagine a Democratic congress allowing a monopoly in this new industry, and even if that were to happen, it would still have to win approval from the Justice Department's Antitrust Division.

I just don't know how newsworthy this proposed merger is, considering how unlikely it is that the Sirius/XM deal will ever happen.