Monday March 24, 9:06 pm ET
By John Dunbar, Associated Press Writer
It’s about time: The Justice Department Finally Approves The XM-Sirius Satellite Radio Deal
Were half way there. Now the FCC needs to approve this merger.
The combination still requires approval from the Federal Communications Commission, which prohibited a merger when it first granted satellite radio operating licenses in 1997.
The Justice Department, in a statement explaining its decision, said the combination of the companies won’t hurt competition because the companies are not competing today. Customers must buy equipment that is exclusive to either XM or Sirius, and subscribers rarely switch providers.
“People just don’t do that,” Assistant Attorney General for the Antitrust Division Thomas Barnett said in a conference call with reporters.
The government also appeared to endorse a central argument the companies used in pushing for their merger: that ample competition is provided by other forms of audio entertainment, including “high-definition” radio, Internet-based radio stations and even devices like Apple Inc.’s iPod.
“The likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term,” the Justice Department said.
The buyout received shareholder approval in November. The companies said the merger will save hundreds of millions of dollars in operating costs — savings that will ultimately benefit their customers. The Justice Department supported that argument in its statement.
“Substantial cost savings likely to flow from the transaction also undermined any inference of competitive harm,” it read.
The FCC had no comment on the decision Monday. In the past, FCC Chairman Kevin Martin has said any approval faced a “high hurdle.”
Martin said last week that agency staff was “drafting various options” in preparation for a final recommendation. The five-member commission could vote against the deal, approve it or approve it with conditions. The agency could require the companies to freeze prices or make part of their satellite spectrum available for public-interest obligations.
Sen. Herb Kohl, D-Wis., chairman of the Senate Judiciary Committee’s subcommittee on antitrust, said in a statement that the merger would create a satellite radio monopoly and asked the FCC to block it.
“We are particularly disturbed by this decision, given the Justice Department’s record in recent years of failing to oppose numerous mergers which reduced competition in key industries, resulting in the Justice Department not bringing a single contested merger case in nearly four years,” he said.
The National Association of Broadcasters blasted the decision, singling out the government’s argument regarding the exclusivity of the equipment. When the satellite radio industry was created, the new licensees promised to create radios that would receive both services, but never delivered.
“To hinge approval of this monopoly on XM and Sirius’ refusal to deliver on a promise of interoperable radios is nothing short of breathtaking,” said NAB executive vice president Dennis Wharton.
The companies have pledged that the combined firm will offer listeners more pricing options and greater choice and flexibility in the channel lineups they receive. If the deal is approved, the companies have said they would offer pricing plans ranging from $6.99 per month, for 50 channels offered by one service, up to $16.99 a month, where subscribers would keep their existing service plus choose channels offered by the other service.
XM and Sirius released statements Monday noting support for the merger and touting the consumer benefits of the new programming packages, including one that will allow subscribers to pay for just the channels they want.
“These will be the first ever a la carte options in subscription media,” a joint statement read. A la carte programming will only be available for subscribers using new radios “which are in development and will be brought to market following approval of the merger.”
Despite the consumer-friendly promises, most consumer groups have opposed the proposed merger.
“If this is what our competition cops do, we might as well close shop and save taxpayers a few hundred million dollars because they’re not doing their jobs,” said Gene Kimmelman, vice president for federal and international affairs for Consumers Union, nonprofit publisher of Consumer Reports magazine.
Both companies continue to lose money, but in the past year have shown significant gains in both revenue and subscribers.
XM added 1.4 million subscribers in 2007 and reported a 22 percent increase in revenue and a net loss of $682 million for the year. Sirius added a record 4.2 million subscribers in 2007 and reported a 45 percent increase in revenue and a net loss of $565 million for the year.
Washington-based XM has more subscribers with 9.0 million, but Sirius has continued to cut into the company’s lead. Through the end of 2007, New York City-based Sirius reported 8.3 million subscribers.
Shares of both companies rose following the news. XM Satellite shares were up 15 percent in afternoon trading while Sirius was up 8.6 percent.