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Editorial: Merger? Two Words: Get Real

The proposed satellite merger is an absurd idea and a waste of regulators’ time.

The proposed satellite merger is an absurd idea and a waste of regulators’ time.

My reaction is not the jerking knee of a traditional radio guy protecting radio’s vested interests. When satellite services were proposed, I wrote here that they should be approved, contrary to what most large broadcasters were then arguing, in part because I felt that competition would benefit traditional radio by pushing our industry to respond and innovate (as in fact it has). This is part of the FCC’s job, to facilitate new and better services for consumers. I accepted the idea, although I was leery of the artificial limitation of allowing only two companies.

Satellite radio operators knew what they were getting into from the day they accepted these huge chunks of spectrum. FCC rules specified that the companies would have to remain separate in perpetuity. Regulators who made those rules knew exactly what they were doing. In fact, Sirius and XM enjoyed a special benefit, knowing in advance that each would only have a single direct competitor — at least for a long time. They were, and are, protected from real competition, which is a lot nicer deal than most communications companies, even startups, get when they enter a market.

That market has not changed substantially, so there’s no justification for relief due to shifting conditions beyond the operators’ control. Yes, the iPod has entered the American consciousness, but casting the competitive environment for satellite radio as being that broad is a slippery slope for regulators.

Meanwhile, it’s not as though satellite’s customer base hasn’t been growing. Signing up nearly 15 million paying customers in five years is an impressive record, especially considering consumers’ inherent initial resistance to paying for a service that traditionally has been provided for free.

The operators’ plight is largely of their own making. I felt from the start that satellite radio was a no-brainer, a sure-fire successful business concept — “Talk to any NASCAR or baseball fan,” I argued, “and ask if they would pay $10 or $15 a month to have full-time racing radio or ballgames” — but my caveat was that the services would succeed if owners could keep costs under control.

Were it not for unwise content acquisition deals and high operating expenses, both companies would be well into profitability, and the current call for bailout-by-merger would never have had to be considered by a federal government that has better things to think about.

Some critics have pointed out that terrestrial radio has petitioned successfully for regulatory relief allowing consolidation and is asking for more. True, and those changes arguably have had a positive effect on terrestrial radio’s fiscal condition. But there is little evidence that those moves provided significant benefit to U.S. consumers; neither would a similar move in satellite radio.

Anyway, even at its most extreme, terrestrial consolidation stops far short of allowing anything like a monopoly in any local market. The FCC took great pains to steer clear of such conditions when it amended its ownership rules in 1996, and will likely continue to do so if further changes are enacted.

By the way, if we accept the satellite argument about competition with other media, why not accept the argument for terrestrial? Shouldn’t we just eliminate all ownership restrictions within radio? After all, broadcasters essentially are in the same position relative to iPods and MP3s as XM and Sirius are; and the presence of an even bigger satellite competitor will only make that more true. Why not sound the cry, “Give all of radio regulatory relief!” RW does not advocate this path; but by approving a merger, regulators might be handing radio’s biggest owners a powerful precedent for easing their own harnesses dramatically.

Saying no to the merger is also a matter of fairness. Satellite radio operators won access to their priceless spectrum, and were protected from full competition in that space, by agreeing to certain assumptions and limitations. Other companies vied for that spectrum. Why not let them back into the game if XM and Sirius can’t cut it under the conditions in place when they accepted their licenses?

And while we’re at it, if regulators do allow XM and Sirius to merge, why not hand back half of that spectrum and let someone else use it? If we agree to toss our original assumptions and limitations, put all of them back on the table.

I was chatting about these questions with our Contributing Editor Skip Pizzi. He and I both feel cautiously confident that the FCC, the Justice Department or both will block this merger because allowing a single licensee for an entire service with a national footprint crosses even the most business-friendly line of the current administration. This would be a proper judgment, one that would uphold the original spirit of the allocations.

Competition is good for the U.S. consumer, for terrestrial radio and yes, even for satellite radio in the long term. If satellite radio can’t exist in even a minimally competitive environment, perhaps it shouldn’t exist at all.