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Radio daze

XM and Sirius, the nation's two satellite radio providers, want to merge. The FCC should let them.

February 20, 2007

FEDERAL REGULATORS are notoriously slow to act, yet it took the chairman of the Federal Communications Commission less than half a day to erect a daunting roadblock to the proposed merger of the country's two satellite radio services, XM and Sirius. Within hours of the companies' announcement of their intention to combine operations, FCC Chairman Kevin J. Martin reacted, saying that XM and Sirius "would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices."

Martin's two-pronged test sets a nearly insurmountable bar. It's hard to argue that "more choice" results when the only two suppliers of a product combine, or that the merged entity will be deterred from hiking the fees paid by its subscribers (14 million at last count). In addition, when the FCC issued two licenses for a national satellite radio service in 1997, it said that they could not be owned by a single company.

That said, Martin's statement is inconsistent with the approach the FCC has taken on media consolidation in general. The goal should be to promote choice not in the niche occupied by XM and Sirius but in the general market of audio entertainment. That market is very competitive, particularly among national players.

Consider a few statistics. Half of the new cars sold in the U.S. this year will have stereo systems designed to work seamlessly with an iPod. These and similar devices can also play podcasts -- a recorded program that emulates over-the-air radio -- from more than 44,000 sources. Of the roughly 12,500 over-the-air stations pumping out conventional radio broadcasts, about 1,200 also broadcast in digital -- frequently, with more than one channel in different formats. And a growing number of mobile devices are able to tap into the expanding ranks of online music services.

Meanwhile, Sirius and XM are bleeding money at a prodigious rate as they try to amass the subscribers needed to overcome their debt and depreciation costs. Allowing them to merge could save them billions of dollars in marketing and maintenance expenses while preserving satellite radio as one of many alternatives available to consumers.

Anticipating resistance from the FCC, the companies said they would let people subscribe to channels on a more a la carte basis -- a favorite cause of Martin's, at least where cable and satellite TV are concerned -- and broaden their programming. They also said the combination would lead to less expensive receivers and more advanced services, such as delivering improved traffic and weather reports. The FCC should look at these concessions, declare victory and approve the merger.

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