10 Concessions the FCC May Demand for Radio Merger Approval

Now that the Department of Justice has rendered its decision regarding the merger of Sirius (SIRI) and XM (XMSR), the next logical question is when the FCC will make its decision. The answer is another great unknown in the world of satellite radio. Speculation ranges from days to weeks, and no one really knows. However, there are possibilities that may give hints as to when activities may happen.

1. FCC Chairman Kevin Martin has expressed that the staff at the FCC is drafting outlines with various merger outcomes. This would indicate that there is likely some time yet before a finalized decision is reached. If there was a sense of urgency, then those reports should be available by the end of this week. Leave at least another week for review, and the FCC decision is a Q2 event.

2. FCC public filings are nearly exhausted. Those for and against the merger have exhausted any information that can be brought to the table. At this point all information is in hand at the FCC. There could be some jockeying for position amongst commission members seeking additional concessions, or simply prolonging the process. Even if a notice is filed announcing a pending vote, dissenters can prolong the timeline for at least 30 days if they choose to do so.

Perhaps more important than the timeline is the concessions that may be asked of Sirius and XM. With DOJ approval on a broad base, and without any stipulations, the challenge for the FCC is now bigger. It is now the FCC that will determine the shape of the audio entertainment landscape going forward. The FCC has never gone against the DOJ in matters such as this. It would be highly unlikely that this will happen now. Thus, the situation boils down to concessions. Here are some things to consider:

1. A-La-Carte - The FCC will ask for this, and the companies will grant it.

2. Price Freeze - The FCC will ask for this for a specified period of time. The companies will agree.

3. Educational and Informational Programming - The FCC will require that a certain percentage of content be a part of this category. The companies will point out that they already do this with news, NPR, children’s programming, etc. The FCC will ask that some additional channels be made. In my opinion the companies will do this.

4. Exclusive OEM Deals - The FCC will ask that exclusive OEM deals not lock out other audio entertainment platforms. They will also stipulate that should a audio entertainment competitor arise using satellite delivered or digital signal, they not be excluded from dealing with OEMs. The companies will agree.

5. Open Hardware Platform - The FCC could ask that the specifications, etc. be made open so that any company wishing to produce radios can do so. The companies will argue that they subsidize chipsets, but that if a company is willing to forgo the subsidy, they would agree to the stipulation.

6. The FCC could ask for strengthened language regarding local content. The companies will argue that the current rules are strict enough. If it is a make or break situation, I feel the companies will concede this issue. However, this also could raise freedom of speech issues that go outside the realm of the FCC.

7. The FCC could ask that some channels be assigned to minority programming with the companies having no editorial control. Sirius and XM will point out the minority programming already available, but may concede this issue.

8. The FCC could ask that HD radio be included in SDARS chipsets. This would be a bold request by the FCC, because it frees Ibiquity from having to give up revenue in order to gain acceptance. I do not know which way the companies will fall on this issue, but it is possible that it will be accepted if Ibiquity pays the companies a fee for such an endeavor.

9. The FCC may ask for a portion of spectrum back. The companies will fight this strongly. They need their spectrum to facilitate the broadcasting to existing receivers. Additionally, the spectrum carries with it a large value. Taking away spectrum takes away value. Without value, the companies' other plans become much more of a challenge.

10. The FCC may ask for a license back. The companies will fight this as well. Given the broad definition of the market, as outlined by the DOJ, the companies can argue that there is already plenty of competition out there.

While the popular question is WHEN the FCC will decide, the important question is WHAT will be the stipulations attached to the approval.

With the announcement Monday that the Department of Justice has approved the merger, all attention now shifts to the FCC. While getting the antitrust issue out of the way was a large accomplishment, the merger can not be consummated until the Federal Communications Commission gives their blessing on the deal.

The DOJ news sent Sirius and XM upwards, but with this good news also comes the reality that there is still one regulator that needs to render a decision.

The decision by the DOJ is very interesting in that it spells out pretty specific reasoning behind their decision. Some “experts” had felt that a positive DOJ decision was very unlikely. I have always maintained that I felt the market would get a broader definition, partly because of the obvious crossover in platforms that has been happening at a rapid pace over the last few years. I also felt strongly that the DOJ would give a lot of weight to what the competitive landscape would look like in the future. Some were critical of that opinion, but in the end, the DOJ was very specific that technological change weighed into their decision.

From the DOJ:

WASHINGTON — The Department of Justice’s Antitrust Division issued the following statement today after announcing the closing of its investigation into the proposed merger of XM Satellite Radio Holdings Inc. with Sirius Satellite Radio Inc.:

"After a careful and thorough review of the proposed transaction, the Division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers. The Division reached this conclusion because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers for several reasons, including: a lack of competition between the parties in important segments even without the merger; the competitive alternative services available to consumers; technological change that is expected to make those alternatives increasingly attractive over time; and efficiencies likely to flow from the transaction that could benefit consumers."

Position - Long Sirius, XM

Comments

[PocketRadio]

"DOJ Approves Sirius/XM Merger"

"The statement also dismisses claims by HD Radio that a merged Sirius and XM would exclude competing technology from car stereos and other equipment."

tinyurl.com/32og6s

"Lack of interoperable radio key to XM+Sirius merger approval"

"In an unusually sideways argument from the US Justice Dept. this afternoon, the fact that both XM and Sirius satellite radio services have been unable to create an interoperable radio device for the foreseeable future, has been put forth as evidence that a merger between the two entities -- which the DoJ approved this afternoon -- would not reduce competition between them."

tinyurl.com/2ajgq6

The DOJ has ruled against HD Radio, and without interoperable radios, HD has no chance of getting in-dash. Mark Ramsey stated that any other concessions/demands by the FCC will be minimal.