Penultimate Hurdle

26 March 2008



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XM-Sirius Merger Moves Closer

The two companies in the satellite radio business in the US, Sirius and XM, finally got permission for their proposed merger from the Justice Department earlier this week. One would think that creating a monopoly would be contrary to the interests of consumers. But this is Mr. Bush’s America. Not only does the DOJ say this will be good for the market, but also the FCC, which still hasn’t made a formal decision, may be getting onboard. This thing has been going on for over a year now.

The question before the DOJ was whether the creation of a single satellite radio network is the creation of a monopoly. One would think the answer would be obvious, but the DOJ decided that satellite radio was just one form of entertainment, competing against a variety of others. For example, Thomas Barnett, head of the antitrust division at the DOJ, decided that the iPod represented competition for the single satellite network.

What the Mr. Barnett’s crew didn’t think about was the lack of competition between the two in the first place. Research by both companies showed that consumers weren’t switching back and forth to get the best deal. Instead, they invested in one system and, because the equipment of one company couldn’t receive the programming of the other, the consumer was stuck. Imagine buying at TV that only receives Viacom owned networks and having to spend again to get a different TV set for NBC’s networks.

This raises the matter of barriers in the satellite market. In an efficient market, the barriers to entry and exit are low. Putting a satellite or two into geosynchronous orbit, buying content, and manufacturing receivers to play the signal is a capital intensive prospect. Therefore any other company choosing to get into the market will have to spend heavily. And the DOJ’s decision effectively creates a single player in the space against which one would have to compete -- another daunting prospect.

The fight now goes to the FCC, which can make the two companies open things up a bit. The Financial Times reported, “in an effort to appease FCC chairman Kevin Martin, both companies offered an option in July that they said would lower prices by unbundling their satellite offerings. He is expected to make a more stringent version of the offer a condition of the deal.” But that won’t kill the deal, and it won’t regulate this monopoly very effectively if the DOJ doesn’t stand behind it

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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