FCC discloses logic behind its approval of XM-Sirius merger

It's yesterday's news that the Federal Communications Commission has, by a 3-2 majority, given the go-ahead for Sirius satellite radio to acquire XM. But now the FCC has issued its complete Order, which sweats the details of the deal and discloses the agency's reasoning. HangZhou Night Net

To recap the basics of the union: the Commission has accepted a series of "voluntary commitments" from the new entity: most notably a three-year cap on prices. The new broadcaster will provide à la carte programming to consumers. Four percent of its channels will go to noncommercial programmers; another four to "certain Qualified Entities," which probably means one or more minority broadcasting groups.

The merged entity pledges to roll out an interoperable receiver that can access both broadcasters within nine months of its union. There's also that "open device" requirement. Receiver manufacturers will be allowed to add other features: iPod integration, broadband, AM/FM, or HD Radio. Some parties wanted the FCC to require any tuner that includes AM/FM to also include HD Radio. The Commission says it will launch a Notice of Inquiry on the HD question, which Ars guesses means that the proposed extra rule is on the long list of the FCC's priorities.

It won't harm terrestrial radio

But why did the FCC's three Republicans approve the merger? Essentially, the Commission defends the union on the grounds that these voluntary commitments override any potential anticompetitive harm. Some of these pledges, especially à la carte radio, will be particularly good for consumers, the FCC says. The agency also found unconvincing warnings of harm to terrestrial radio.

The Order doubts studies sent to it which argued that satellite and free radio compete with each other, therefore the merger represents a threat to AM and FM broadcasters. "We find that the record evidence is insufficient to define precisely the relevant product or geographic markets," the FCC concluded. "Without defining the relevant product and geographic markets, we cannot perform a structural analysis to predict the likelihood of anticompetitive harms."

In so many words, the Commission said it couldn't divine from the data the extent to which free radio listeners won't listen to AM and FM because of a merged Sirius/XM. As for fears that the new company may raise prices, that's easy: they won't because they've promised not to for three years.

The FCC also rejected warnings that a united Sirius/XM will be better able to "steal" talent away from terrestrial radio, as in the case of Howard Stern's migration to Sirius. What would be wrong with that, anyway? "Indeed, the merged firm's ability to negotiate better terms for expensive talent could benefit consumers via lower rates," the Order observed, "and it would not be in the combined company's interests to negotiate deals that harm the quality of content, especially while seeking to increase subscriber penetration and so move to profitability."

The agency did agree with various commenters that a married Sirius/XM could leverage unfair power over manufacturers for interoperable receivers. But the new company's open device pledge will "adequately mitigate the potential harm presented by this transaction," the FCC says.

Finally, it's obvious from the FCC's Order that the agency sees a big selling point in Sirius and XM's commitment to provide à la carte programming. "The proposed à la carte system will allow consumers to, in effect, 'block' unwanted or objectionable content that would otherwise be delivered to consumers' SDARS devices," the Commission predicts. À la carte will give listeners "greater control" over programming. And they'll be able to pay lower prices for the services they receive.

No spectrum return

Some commenters asked the FCC to require Sirius/XM to give back a percentage of their spectrum in order to create one or more new satellite radio companies. This would require an unacceptably complex overhaul of Sirius and XM's networks, the FCC claimed. "Furthermore, in addition to the harm to existing SDARS customers from a partial divestiture," the Commission wrote, "it is not clear to us that a new competitor would have sufficient spectrum to emerge as a significant competitor to the newly merged entity, nor is it clear that a new SDARS operator could overcome the regulatory and business hurdles required to offer service."

Many parties will probably be disappointed that the FCC has added no specific enforcement mechanism to this Order. Public interest groups, politicians, and the National Association of Broadcasters charged that Sirius and XM's violation of the agency's terrestrial repeater rules, and failure so far to create an interoperable receiver, showed a lack of trustworthiness. Echoing these concerns, FCC Commissioner Jonathan Adelstein proposed some kind of watchdog entity be created to ensure XM and Sirius's compliance (that is, before he decided to vote no on the deal).

Sirius and XM have entered into a Consent Decree to make amends and pay restitution for their "variant" repeaters, as the agency calls them. Beyond that, there's no watchdog in this Order. Just a promise:

We will rigorously monitor Applicants' compliance with the conditions of the Consent Decrees and the conditions specified herein and believe that the mechanisms put in place in those Decrees will fully serve to ensure compliance on an ongoing basis. Moreover, we will not hesitate to take prompt and effective enforcement action if these conditions are not satisfied.

Further reading

The FCC's Memorandum and Order on the Sirius/XM merger