House panel grills Sirius chief on XM merger

Politicians say they want to keep an open mind but indicate the deal may have high hurdles to leap.
Written by Anne Broache, Contributor
WASHINGTON--Sirius Satellite Radio CEO Mel Karmazin on Wednesday defended the proposed union of his company with XM Satellite Radio before a panel of politicians with varying degrees of concern about the deal's potential impact on consumers.

Appearing at the first hearing convened here by the House Judiciary Committee Antitrust Task Force, Karmazin said a combination of the sole two satellite radio players would lower, or at least cap, its prices and provide more programming choices.

For example, one network carries Major League Baseball games, and the other carries the National Football League games, but neither carries both. Sports fans would no longer have to pay to subscribe to both services or buy two different radio receivers if the entities merged, he said. Karmazin also pledged that existing radio receivers for each service would continue to work after the melding of the companies.

"We are absolutely convinced that this merger is going to be in the consumer's best interest," said the Sirius chief and former Viacom president.

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Attitudes toward the proposed deal, worth about $13 billion, did not appear to be split along party lines among members of the newly created House task force, which has 10 Democrats and nine Republicans. Many opened their questioning on Wednesday with vows to keep an "open mind" about the deal but went on to question the deal's necessity and its benefits to consumers.

Task Force Chairman John Conyers (D-Mich.) pressed Karmazin to explain how he planned to persuade federal regulators that the companies will follow through on their promises.

"'Trust me' isn't going to work here, not just today, but in the longer-term examinations that you will be going through," Conyers said. "You've got some high hurdles to overcome, don't you think?"

One hurdle already lies in the licenses granted to the companies by the Federal Communications Commission. In hopes of ensuring competition, the FCC stipulated at the time that there had to continue to be more than one licensee in the satellite radio sphere. XM and Sirius would have to persuade the regulators to waive that decision.

Citing the FCC's policy decision, Rep. James Sensenbrenner (R-Wis.), the former chairman of the House Judiciary Committee, challenged XM and Sirius executives' repeated assertions that the merged entity would not constitute a monopoly.

"What you appear to be advocating is to make your merged company somewhat akin to an old regulated gas company, and I don't see where the consumer ends up benefiting in that," Sensenbrenner said.

He also questioned how the XM-Sirius plan was any different than a proposed merger between EchoStar Communications' Dish Network and Hughes Electronics' DirectTV that the FCC blocked on the grounds that it amounted to a "regulated monopoly."

Karmazin said his companies' situation was different because the satellite TV business competes with cable and not with free services like terrestrial and Internet radio. Throughout the hearing, he repeatedly challenged any suggestion that the merged companies would have incentive to raise their prices by saying, "We compete with free."

One key question in assessing the deal's impact lies in defining the satellite radio's competitors. If satellite radio is viewed as an entirely separate market, then the proposed deal would seem to amount to a situation in which a monopoly is created--at least until the next satellite player emerges. By contrast, if regulators decide it should be considered part of a broader market that includes all forms of digital and retail music, such as Internet-based and terrestrial radio, then the competitive implications would change drastically.

Sirius and XM argue the union of their two companies will not amount to a monopoly, as critics have suggested. They maintain the deal will instead allow them to compete more effectively with Internet-based and traditional broadcast radio. According to analysts' estimates, the combination could save the companies $300 million or more each year, Karmazin said.

But opponents like the National Association of Broadcasters maintain the situation is no different from the satellite TV merger situation and would create a "government-sanctioned monopoly." Speaking alongside Karmazin and representatives from consumer advocacy groups, NAB CEO David Rehr told the task force that such an arrangement would violate federal rules and would "undermine audio content competition, not enhance it."

Rep. Anthony Weiner (D-N.Y.) took issue with that characterization of the proposed deal. He said it was clear that satellite and traditional radio operators offered similar and competing services and that NAB's fight against the deal only reinforced that traditional radio operators are concerned about new competition.

The term monopoly "might serve to send shivers into the spine of regulators, but it doesn't have much effect if it has no foundation in the realities of the world today," he said.

Consumer groups' perceptions have been mixed. Mark Cooper, director of research for the Consumer Federation of America, voiced strident opposition to the deal, saying the groups he represented "remain unconvinced by the excuses we have heard to justify this merger." He said he was convinced only "head-to-head competition" would lower prices for consumers in the long run.

Gigi Sohn, president of the advocacy group Public Knowledge, told the panel that the merger could lead to consumer benefits if certain conditions are imposed. She suggested requiring the company to make a la carte or tiered programming available, agreeing not to raise prices for three years after the merger is approved, and making 5 percent of its capacity available to independently controlled, non-commercial educational and informational programming.

Rep. Rick Boucher (D-Va.) endorsed Sohn's recommendations. "This merger is very much in the public interest and should be approved with those conditions," he said.

The FCC and the U.S. Department of Justice share the ultimate responsibility of to deciding whether the deal should go through and what restrictions must be placed upon it. It's unclear how the congressional task force will fit in, although Rep. Lamar Smith (R-Texas) said he hoped the agencies will consider its findings when making their assessments.

Smith, the top-ranking Republican on the Judiciary Committee, also urged his colleagues not to "prejudge" the proposed merger. "We are at the beginning of a very long process," he said.

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