| The satellite
radio Merger - What Now?
Following the US Department of Justice approval
of the Sirius takeover of XM - as forgetting the PR guff Mel
Karmazin will call the shots and that in practice is what
it is in terms of all but the division of spoils amongst the
shareholders - the major question outstanding is what if any
conditions the Federal Communications Commission (FCC) should
place on the merger.
In considering this question - and we were marginally on balance
against the deal (See
RNW Comment Feb 2007), we think the FCC should
almost totally dismiss the interests of the merged company
(which, after all, is getting what it wanted to its considerable
potential financial benefit) and radio industry lobby (The
NAB's submissions have in our view been ill thought out to
put it mildly and Clear Channel's call for subscription services
to be subject to FCC indecency and other regulation is contemptible)
and concentrate on the interests of potential subscribers.
The prime condition:
One thing that emerged from the DOJ ruling
was that in effect, because there had been no insistence on
receivers being able to handle both satellite services, there
was little competition between Sirius and XM as most subscribers
remained with the service provided by the maker of their automobile
or, having bought a receiver for fitting in an existing vehicle,
did not then want to change the receiver.
That this had happened was in our view a significant failing
of the regulators and it should not be allowed to continue.
The implication of this is that future receivers should contain
chips that can handle both signals and in our view remedying
this shortfall should be a condition of the merger: Equipment
will not be available for some time to do this but to speed
things up and give the merged company (which we will term
Satco for convenience) a compelling incentive
to get its act together, we think the FCC should impose a
condition that six months after the merger, Satco will have
to replace - including fitting - any equipment subsequently
sold by them that cannot handle both signals - and should
have to put a suitable amount into an escrow account to cover
the cost as it sells equipment with the funds concerned to
be set aside for equal distribution to all subscribers should
Satco fail in future and there is funding in this account.
Then there is the question of HD. The lobbying by terrestrial
radio to force the satellite companies to fit HD chips into
all receivers sold is we think over the top. However for the
benefit of listeners it would be positive that receivers are
available that will handle analogue and HD signals as well
as the satellite signals.
In terms of this, we think that it would be quite reasonable
to impose a merger condition requiring the satellite radio
company to make technical information available to other companies
so that they can manufacture such receivers if they so choose
- since any such equipment is likely to be bought with a subscription
in mind, we think that any technology licensing charges that
might be involved should be borne by the satellite radio company
rather than other manufacturers and we doubt whether in practice
this would cause any hardship.
Then there is there is the question of HD availability for
those customers who continue to use receivers supplied by
the satellite company as part of a subscription deal. In this
case we do think there should be at least one receiver option
available from Satco that would handle all signals and that
it would be reasonable to insist on such a model being available
in the original equipment fitted by automobile companies.
It would not be reasonable to force Satco to subsidize this
however and thus any such model could be expected to cost
more albeit the additional cost could be regulated such that
it cannot be more than 10% above the additional hardware and
licensing costs needed to manufacture the receiver.
Regarding content there has been considerable
lobbying pressure to require that Satco make a significant part
of its spectrum available to an outside organization, a condition
that it seems to us could well throw a major spanner in the
works as regards the various promises made as the future subscription
packages that would be available to Satco subscribers.
Attractive though this idea may seem at first glance, it does
not in the end look to us as if it would on balance provide
a better service to would-be listeners, particularly in view
of suggestions that this should be an advertising-funded free-to
receive service- one likely in our view to be used as a Trojan
by the terrestrial companies to argue for censorship of the
whole satellite service. We therefore think it should be rejected.
Satco's service should remain subscription.
In this case the potential suppliers of the services concerned
are free as it is to pitch proposals for services that, if attractive
enough, Satco would be foolish to reject without proper consideration
and that in our view is as far as things should go.
And what about pressures from other organizations to impose
conditions in terms of public service and minority interest
services? These in our view should be treated the same way:
They are a potentially dangerous interference with the marketplace
and Satco business plan.
As for censorship - the filing by Clear Channel and others that
the Satco service should be subject to the same indecency regulation
that the FCC applies to terrestrial services boils down to just
this and if the service remains a subscription one, which is
what we would argue it should not even be attempted.
There is one area of content, however, where we think regulation
should be eased not imposed. This is the area of local weather
and traffic services where information provided may well be
of safety interest and where already motorists have various
options available. We take the view that where the information
relates to an emergency the sensible approach is to ensure that
satellite listeners receive as much information as terrestrial
ones and that the prohibition on local terrestrial repeaters
carrying different programming should be lifted under appropriate
conditions and with appropriate safeguards (essentially continuing
a ban on advertising and local programming). This could be done
if need by via appropriate technology that will interrupt normal
reception (as with the traffic alert system common FM stations
in Europe - it interrupts, you can have it off, but you can't
choose to tune to it, which should remove many of NAB's objections
if they are being honest about reasons!).
That takes us to one area where we do think there is
an argument for regulatory conditions. At the moment
satellite radio is one area where most services are
ad-free, a significant reason in the decision of many
people to subscribe. There are no equivalent services
from US radio and so far Internet services are not generally
available whilst driving.
This being the case, we do think that it would be in
the interest of listeners if advertising were to be
formally curbed at least until there is general availability
- including in remote and rural areas of advertising
free music and news services. Regarding this we would
see something on the lines of a minimum three-to-one
deal - for any news, speech or music channels, at least
two advertising-free services would have to be provided
for one that had adverts. Mel Karmazin can then go ahead
with trying to pile adverts into Howard Stern's show
but would have to ensure that two other speech services
The above does
not consider the implications for the services
licensed in Canada and we would expect the Canadian
Radio-television and Telecommunications Commission
(CRTC) to try and ensure that it retains as
many Canadian services as possible.
Since there are comparatively few of these and
despite the pressures this may put on available
spectrum, their efforts seem quite reasonable.
Our overall conclusions.
we are not in favour of a heavy hand
in regulation of the new company but
we do think that a number of conditions
aimed at giving listeners the maximum
choice in terms of both equipment and
reception would be both reasonable and,
given the savings that are expected
to accrue from the deal, affordable.
Prime amongst these is the issue of
ensuring that equipment is available
that can receive all services for a
driver whilst on the roads and a strong
second is ensuring that a reasonable
balance of advertising-free services
is retained, since there are no equivalent
services available whilst on the move
and the technology that would make them
possible is a long way away.
What we are not in favour of is forcing
non-subscription services from other
providers into the mix or making what
we think should remain a subscription
service adhere to the rules that free-to-air
broadcasters have to obey.
What you think? Please