Mergers and Monopolies -- Sirius, XM, and Microsoft

[UPDATE: The URL in the press release at the end was incorrect and has been updated.]

If you missed the announcement back in February Sirius Satellite Radio and XM Satellite Radio announced a planned merger that would create a single satellite radio network. The combined subscriber base would be around 13 million users in the US and Canada -- roughly one in one thousand of the total population in the combined services' footprint. The merger is now before the Federal Communications Commission awaiting approval. While the shareholders are happy about the plan (96% of them voted "for" the merger earlier this month) not everyone is equally thrilled. I just got a press release from The Consumer Federation of America which in partnership with the Consumers Union and Free Press filed a report today with the FCC to reject the proposed XM-Sirius merger. In their report they argue that "joining the two satellite radio companies would eliminate competition and negatively impact American consumers" (the press release is below). I have to agree that if satellite radio is important to us culturally (which the size of the user base would argue for) then the merger would create a monopoly both financially and technically that would not be in the public interest. So, preventing a monopoly from forming would be a good thing and we know how the Federal Trade Commission frowns on such things. But wait a minute, isn't Windows already a monopoly and already far more culturally important than satellite radio? If we don't like monopolies how can we block the Sirius/XM merger and not address the obvious monopoly that faces us every single day? Contrary to what some readers who have written to me think I am not a Microsoft hater, quite the contrary, I am in awe of what they have created and what they can do. That said, I think that fairness has to be a cornerstone of democracy and the economy that supports it and it would take a very naive observer to not conclude from the most trivial examination of Microsoft that its market behavior has been that of a monopoly. It all comes down to whether we, the people, really believe in a truly open free market economy or a planned political economy. Both have there problems and neither are satisfactory to everyone. Moreover the central issue is not what is fair to business but what is fair to our culture and the answer would seem to be obvious: Choice, a level playing field, and equal opportunity. So, is it block the merger and break up Microsoft or leave Microsoft alone and allow the merger? I vote for the former.

November 26, 2007 For Immediate Release Contact: Dr. Mark Cooper, Consumer Federation of America, 301-807-1623 Consumer Groups Call on FCC to Reject XM-Sirius Merger New report shows lack of competition and little consumer benefit to satellite radio merger proposal WASHINGTON -- The Consumer Federation of America, Consumers Union and Free Press today urged the Federal Communications Commission to reject the proposed XM-Sirius merger. In their report filed with the Commission, the consumer groups argue that joining the two satellite radio companies would eliminate competition and negatively impact American consumers. "The proposed XM-Sirius merger is not in the interest of American consumers," said Dr. Mark Cooper, director of research for the Consumer Federation of America and lead author of the report. "Leaving one company to monopolize the satellite radio industry would result in higher prices and fewer choices -- with no foreseeable public benefit." The report details the XM-Sirius merger's many negative side-effects -- both for consumers and for the satellite radio industry. For consumers, the merger would reduce the number of channels and formats available and result in fewer cost-saving incentives. The loss of competition in the industry would cause a dramatic drop in spending on talent and retail. The consumer groups also note how the merger standards of the U.S. government have long prohibited this kind of monopoly to protect consumers against these negative results. "The companies fail to make the case for ending the explicit prohibition on mergers between satellite licensees," said Gene Kimmelman, vice president of international and federal affairs at Consumers Union. "The Commission should not abandon the fundamental principles that have guided its policies for the past decade to approve the deal." Using the FCC's own data on radio stations, the consumer groups introduce new evidence showing that satellite radio and terrestrial radio are not close substitutes -- a direct contradiction to data submitted by XM-Sirius. The report details the evidence that satellite radio represents a unique consumer product, showing that it does not compete with iTunes or Internet radio, nor can its national service be in direct competition with local terrestrial broadcasters. "The Commission should reject this merger," said Ben Scott, policy director of Free Press. "A license to use the public airwaves does not come with an entitlement to monopoly profits -- it carries with it the obligation of public service." Read the report: http://www.freepress.net/docs/cfacufpexparte11-26.pdf