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37–565 PDF 2007

S. HRG. 110–135

THE XM–SIRIUS MERGER: MONOPOLY OR

COMPETITION FROM NEW TECHNOLOGIES

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 20, 2007

Serial No. J–110–21

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

WILLIAM CASTLE, Republican Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1

prepared statement .......................................................................................... 83

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 9

WITNESSES 

Balto, David, Attorney at Law, Law Office of David Balto, Washington, D.C. .. 8

Karmazin, Mel, Chief Executive Officer, Sirius Satellite Radio, New York, 

New York .............................................................................................................. 3

Quass, Mary, President and Chief Executive Officer, NRG Media, LLC, Cedar 

Rapids, Iowa ......................................................................................................... 4

Sohn, GiGi B., President, Public Knowledge, Washington, D.C. ......................... 6

QUESTIONS AND ANSWERS 

Responses of David Balto to questions submitted by Senator Kohl .................... 34

Responses of Mel Karmazin to questions submitted by Senator Kohl ................ 37

Responses of Mary Quass to questions submitted by Senator Kohl .................... 46

Responses of GiGi B. Sohn to questions submitted by Senator Kohl .................. 47

SUBMISSIONS FOR THE RECORD 

Balto, David, Attorney at Law, Law Office of David Balto, Washington, D.C., 

statement .............................................................................................................. 53

Common Cause, Consumers Union, The Consumer Federation of America, 

Free Press, Media Access Project, and Prometheus Radio Project, joint 

statement .............................................................................................................. 65

Karmazin, Mel, Chief Executive Officer, Sirius Satellite Radio, New York, 

New York, statement ........................................................................................... 73

Quass, Mary, President and Chief Executive Officer, NRG Media, LLC, Cedar 

Rapids, Iowa, statement ...................................................................................... 84

Sohn, GiGi B., President, Public Knowledge, Washington, D.C., statement ...... 110

(1)

THE XM–SIRIUS MERGER: MONOPOLY OR 

COMPETITION FROM NEW TECHNOLOGIES 

TUESDAY, MARCH 20, 2007

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND

CONSUMER RIGHTS, 

Washington, DC 

The Committee met, Pursuant to notice, at 2:23 p.m., in room 

226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of 

the Subcommittee, presiding. 

Also present: Senators Hatch and Brownback. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon. This hearing will come to 

order. 

Today we are meeting to consider the proposed merger between 

the Nation’s only two national satellite radio services, XM and Sirius. This merger would eliminate competition between the only two 

satellite radio providers. 

We all agree that there’s no prospect for a new satellite radio 

company to enter the marketplace, but that does not enter our 

analysis. The question is not merely whether this merger would 

create a monopoly in satellite radio, but whether satellite radio is 

a distinct market so that consumers will have no real alternative 

should the combined company raise its price. 

XM and Sirius provide a very attractive service, of hundreds of 

channels of music, entertainment, sports, news, and special interest content to consumers, broadcast in crystal-clear sound quality. 

Much of their content, whether specialty music channels, out-oftown broadcasts of pro football or major league baseball, major entertainment talent such as Oprah Winfrey or Howard Stern, is 

unique to satellite radio and is not duplicated by conventional overthe-air broadcasts. 

Unlike the air radio, satellite radio is a mobile national service 

and its channels are available in every city and every rural area 

throughout the Nation. The merging companies and others who defend this deal argue that there exists ample competition from free 

over-the-air radio and from new technologies, such as wireless 

Internet radio and the I–Pod, so that we should not worry. As a 

result, they argue the combined company will have no power to 

raise prices. 

2

But we must view these claims with a healthy degree of skepticism. Over-the-air radio does not come close to duplicating the impressive array of program offerings of satellite radio. It also appears to us that I–Pods and other new technologies are either too 

new, too expensive, or altogether too different from satellite to be 

included in the same market definition. 

Mr. Karmazin, the last time you came before us was in 1999 

when you were supporting the CBS–Viacom merger. At that time, 

I told you that we thought that deal created more synergy than 

suspicion, and we did not oppose the deal. 

So the burden of proof is squarely on you, Mr. Karmazin, to 

prove to us that our suspicions regarding monopoly and market 

power here today are unfounded. 

While we do not doubt that this deal will turn out to be good for 

you and your shareholders, we have real worries that what may be 

a fabulous monopoly for you will be a real bad deal for consumers. 

So, you must explain to us why competition truly exists in the 

market. Most of all, you must convince us that the consumers will 

not be harmed and forced to pay more once you have merged with 

your competitor. 

We all look forward to your testimony and to that of the other 

members of this distinguished panel of witnesses here today. 

[The prepared statement of Senator Kohl appears as a submission for the record.] 

Our witness introductions. The first person from whom we will 

hear today is Mr. Mel Karmazin. Mr. Karmazin is the CEO of Sirius Satellite Radio, a position he has held since 2004. Previously, 

Mr. Karmazin has served at the highest levels of Metro Media, Infinity Radio, CBS Corporation, and Viacom, and we appreciate your 

being here. We welcome you here today, Mr. Karmazin. 

Our second witness is Ms. Mary Quass, the president and CEO 

of NRG Media in Cedar Rapids, Iowa. NRG operates 84 radio stations, including 16 in Wisconsin. The past 3 years, she has been 

named one of the 40 most powerful people in radio. Senator Grassley wanted to be here today to introduce you, Ms. Quass, but he 

has been detained by a number of scheduling conflicts. 

Our next witness is Ms. Gigi Sohn. She is the president and cofounder of Public Knowledge, a nonprofit organization that addresses communication policy and intellectual property law. She 

has served on the faculty of a number of universities and nonprofit 

and governmental boards where she lends her expertise on these 

issues, and we thank you for joining us here today. 

Our final witness is Mr. David Balto. Mr. Balto has practiced 

antitrust law for more than 40 years, including stints at the Justice 

Department and as Policy Director of the FDC’s Bureau of Competition. He is a prolific author on antitrust and consumer protection, among many other issues. We welcome you back to the subcommittee, Mr. Balto, and we look forward to your testimony. 

Before we start with the testimony, would you all please stand 

and raise your right and take the following oath? 

[Whereupon, the witnesses were duly sworn.] 

Chairman KOHL. We thank you so much. 

Mr. Karmazin, we would be delighted to take your testimony. 

3

STATEMENT OF MEL KARMAZIN, CHIEF EXECUTIVE OFFICER, 

SIRIUS SATELLITE RADIO, NEW YORK, NEW YORK 

Mr. KARMAZIN. Thank you, Chairman Kohl. Before February 19 

when we announced our merger, the Board of Directors of both XM 

and Sirius were advised by very knowledgeable, very prominent 

regulatory agency lawyers and they told us that, in order to get 

this merger approved, we were going to have to get over two hurdles. 

One hurdle was that we would need to demonstrate that the 

merger is not anti-competitive, and second, we would need to demonstrate that it is in the public interest. 

We believed then, and we believe more so today, that this merger 

will accomplish both of those things. We clearly believe that the 

competition that satellite radio faces is very robust and very intense, and will be so after the merger. 

Though some people will talk about the fact that this is a monopoly, or this is a duopoly that is going to become a monopoly, the 

reality is that satellite radio competes with an awful lot of audio 

entertainment services. 

We compete with terrestrial radio, the AM and FM stations, we 

compete with HD radio, which there’s about 1,100 radio stations. 

We compete with Internet radio. We compete with cell phones that, 

when hooked up to blue tooth in a car, are able to get as many programming choices as we have. We compete with MP3 players. 

We provide music, our competition provides music. We provide 

news, our competition provides news. We provide entertainment, 

our competition provides entertainment. We provide sports, our 

competition provides sports. There is no question that there is robust competition in this area. 

In the most recent Arbitron report which measures radio listening, the combined satellite radio audience is 3.4 percent: 96 percent 

of the people are not listening to satellite radio. There are 237 million cars on the road today that have AM and FM radio. The AM 

and FM radio stations reach 230 million people. The whole idea of 

the Internet is growing extraordinarily. There are so many more 

audio choices than there has ever been before. 

The NAB, which has become the most vocal opponent of our 

merger, has made many statements about the face of the competitive marketplace. Of course, that is before they came out against 

our merger. 

In the broadcast ownership proceedings just two months ago, the 

NAB said, ‘‘The current media marketplace is robustly competitive 

and, indeed, bursting at the seams with consumer choice.’’

If you look at the public filings of all of the radio companies that 

they make with the SEC, every single one of them says that they 

compete with satellite radio. In 1998, when Sirius first got its license, and every single year since then, we have filed with the SEC 

and have said that we compete with terrestrial radio. So, there is 

no way of looking at the market and saying that satellite radio is 

only competing with XM and Sirius. 

Let me assure you that Sirius, with our 6 million subscribers, 

and XM, with 7.6 million subscribers, competes with Clear Channel 

with 107 million weekly listeners, and CBS radio, with 53 million 

weekly listeners, as well as all of these other competitors. 

4

I believe I have shown you all of the competition that we compete 

with, but I would like to turn my attention now to what the public 

interest standard would be. In that particular case, I think it is 

very easy, because in the case of making why this merger is good 

for the public interest, we offer two things: one is lower prices, the 

other is more choice. 

So today, if you are a consumer and you want to get satellite 

radio and you like major league baseball and you like the NFL—

Sirius has the NFL and XM has major league baseball—you need 

to buy two radios, you need to have two subscriptions, you need to 

have both mounted on your car, and it is a very cumbersome, very 

difficult thing for consumers to do. 

After the merger, what we have said is the fact that we would 

offer a service that would be taking the best of both companies and 

doing it for lower prices than are currently offered. 

So today you would need to have two subscriptions, $25.90 a 

month. We’re saying, after the merger, that you will be able to get 

it for substantially lower than that $25.90, and you won’t need two 

radios, and the existing radio will not be obsolete. 

And after the merger, for the first time, we will have a lowerpriced entry point. So today, the cheapest way you can get satellite 

radio is if you pay $12.95. 

We have said that we would create a lower-priced package. The 

reason we can create a lower-priced package, is that there are substantial synergies that come about for our shareholders as a result 

of that merger. 

What we are prepared to do is take some of that synergy and 

pass it on to the consumer in the form of lower prices. We have 

also said publicly that what we are saying, you can hold us accountable for in the form of making sure that there are these lower 

prices and more choice. 

One of the reasons you should understand as to why the NAB 

is against this, is why it is so good for consumers. The reason is 

that if in fact this merger happens, there will be lower prices and 

more choice for the consumer. 

Therefore, that consumer will spend more time listening to satellite radio, and they have said that if the consumer spends more 

time listening to satellite radio they will, therefore, be spending 

less time listening to their member stations. 

So, Senator, thank you for listening. I look forward to answering 

any of your questions. 

[The prepared statement of Mr. Karmazin appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Karmazin. 

Ms. Quass? 

STATEMENT OF MARY QUASS, PRESIDENT AND CEO, NRG 

MEDIA, LLC, CEDAR RAPIDS, IOWA 

Ms. QUASS. Good afternoon, Chairman Kohl. I appreciate the opportunity to be here. My name is Mary Quass. I’m the president 

and CEO of NRG Media, which owns and operates local AM and 

FM radio stations in Wisconsin, Iowa, Kansas, Illinois, Minnesota, 

Nebraska, and South Dakota. 

5

I am testifying today on behalf of the National Association of 

Broadcasters, where I currently serve as a member of the NAB 

Radio board. I am here to voice opposition to the proposed merger 

of this country’s only two satellite radio companies, XM and Sirius. 

Satellite radio is a national radio service that provides hundreds 

of audio programming channels to listeners across the United 

States. There are only two such services and they compete against 

each other in a national marketplace. 

The undeniable fact is that XM and Sirius want government permission to take two competitive companies and turn them into a 

monopoly. If this government-sanctioned monopoly is approved, 

consumers will be the losers as there will be no competition to restrain monopoly rates and the power that comes with it. 

Innovation and program diversity will suffer. Neither listeners 

nor advertisers will benefit. Let’s remember that when the FCC allocated spectrum to Sirius and XM in 1997, it specifically ruled 

against a single monopoly provider. 

The commission foresaw the dangers of a monopoly. It explicitly 

licensed more than one provider to ensure intra-market competition and to prohibit one satellite radio provider from ever acquiring 

control of the other. There is no reason to change that now. 

XM and Sirius, by their own admission, are not failing companies. Their current highly leveraged position is due to extraordinary fees paid for marketing and on-air talent, including the 

$500 million contract that Sirius awarded to Howard Stern, and 

the $83 million bonus just this last year. 

But even with these costs, XM and Sirius have made clear that 

they can succeed without a merger. I’ve heard that these companies claim that no one should worry about this monopoly because 

local radio competes against XM and Sirius. 

Let’s be clear. Radio broadcasters do not compete in the national 

market of the satellite radio companies, but XM and Sirius do compete in the local radio markets, markets where I operate every day, 

markets like Warsaw, Wisconsin. 

Local radio stations can only broadcast within their FCC-defined 

coverage area. Local broadcasters’ signals are not nationwide and 

are not available by subscription. The national availability of satellite radio sets it apart from local broadcasters. 

NRG Media operates in small and medium markets like Janesville, Wisconsin, Spirit Lake, Iowa, and Salina, Kansas. We understand that localism is our franchise and that we have a unique connection to the listeners that no other medium provides. 

We are the voice of the community in times of emergencies, like 

the recent ice storms in Kansas and Iowa, and for many of these 

areas that are no longer served by other local newspapers and outlets, we may be the only link to airing community information and 

things like obituaries. 

XM and Sirius, by contrast, offer a prepackaged bundle of national mobile, digital audio channels. WSJY in Ft. Atkinson, Wisconsin delivers outstanding local news, sports, and entertainment. 

Consumers, however, would never consider my station’s local programming to be comparable to a product on Sirius on one of their 

133 channels, or XM’s 170. 

6

A local radio station’s programming is clearly not a substitute for 

the array of services offered by XM and Sirius. Services like XM 

and Sirius compete with each other and no one else in the national 

satellite radio market. 

I can understand why they would want a monopoly, but that 

does not mean that it is in the best interests of the public. Five 

years ago, the only two nationwide TV satellite licensees, Echo Star 

and Direct TV, proposed a merger that looked an awful lot like this 

one. They failed. 

Indeed, the Department of Justice filed a complaint to block the 

merger and the FCC decided unanimously that the merger was not 

in the public interest. An XM and Sirius merger is not either. 

For these reasons and others, I respectfully ask you to urge regulators to just say no to this government-sanctioned monopoly. 

Thank you. 

[The prepared statement of Ms. Quass appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Ms. Quass. 

Ms. Sohn? 

STATEMENT OF GIGI B. SOHN, PRESIDENT, PUBLIC 

KNOWLEDGE, WASHINGTON, DC 

Ms. SOHN. Thank you, Chairman Kohl. 

The proposed merger presents a dilemma for public interest advocates. On one hand, the only two providers of satellite radio, 

which have vigorously competed for the past 5 years, are seeking 

to consolidate, raising questions about the impact on prices and 

choice for consumers. 

On the other hand, this vigorous competition has led to a spending war for programming, leaving both competitors weakened in a 

world where other multi-channel music, entertainment, and information services have become increasingly popular. 

Regardless, the salient question is this: how will consumers be 

better off? Will they be better off with one or two weak companies 

or with one strong company that is subject to conditions that protect consumer choice, promote diverse programming, and keep 

prices in check? I believe that if the merger passes antitrust scrutiny, the latter will best serve consumers. 

The antitrust questions raised here are very complex and ultimately depend on information to which Public Knowledge does not 

have access. Despite the availability of an increasingly wide variety 

of radio, wireless, mobile, and multi-channel music services, it is 

unclear whether consumers would turn to these services if satellite 

radio prices were raised. Data on how and why consumers choose 

to spend their money on satellite radio and other data would be 

helpful in making that determination. 

Even if the merger survives initial antitrust scrutiny, however, 

significant competitive concerns remain. Therefore, the merger 

should be approved only if it is subject to the following three conditions. 

First, the new company should make available to its customers 

tiered program choices. For example, the company can make a 

music tier or a sports tier available to consumers which would cost 

less than subscribing to the entire service. 

7

Second, the new company should ensure programming diversity 

by making available 5 percent of its capacity for non-commercial 

educational and informational programming over which it has no 

editorial control. This would resemble a similar requirement for 

DBS providers. 

Third, the new company should be prohibited from raising prices 

for its combined programming package for 3 years after the merger 

is approved. In addition, policymakers should determine whether 

the new company should divest all, or some, of the extra spectrum 

it will have as a result of the merger. 

There are several reasons why we believe that a properly conditioned merger would be in the public interest. First, consistent 

losses and slowing subscribership at both companies make it less 

likely that they will take a chance on alternative programming and 

programming that meets the needs of under-served communities. 

A combined subscriber base would allow the new company to distribute the high fixed cost of a satellite system across a larger consumer base, reducing the cost per subscriber and enabling new programming and/or lower prices. 

Second, consumers would gain access to channels that they 

would not receive unless they subscribed to both services. Third, 

eliminating duplicative channels will create more capacity for new 

and diverse programming. 

I will conclude by raising two other concerns. First, Public 

Knowledge opposes any merger condition involving limitations on 

the ability of consumers to record satellite radio services. Such a 

condition would be tantamount to repealing the Audio Home Recording Act, which specifically protects a consumer’s ability to 

record digital music. 

Second, we also oppose any merger condition that would limit 

satellite radio from providing local programming. Broadcasters’ opposition to this merger is hypocritical, given their own current regulatory efforts to consolidate and their decade-long history of attempts to hobble satellite radio services with content and other regulatory restrictions that are themselves anti-competitive. 

Even assuming that broadcasters take seriously their duty to 

serve local communities, there is no reason why, in 2007, any 

media service should have a government-granted monopoly over 

local programming. Regardless of the current satellite radio companies’ intent to provide local service, future services should not be 

barred from doing so. 

While broadcasters like to talk a lot about having a level playing 

field, their support of programming limits and opposition to paying 

the same performance fees to artists that all other radio services 

pay instead reveal the industry’s desire for government-sanctioned 

competitive advantage. 

I look forward to your questions. 

[The prepared statement of Ms. Sohn appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Ms. Sohn. 

Mr. Balto? 

8

STATEMENT OF DAVID BALTO, ATTORNEY AT LAW, LAW 

OFFICE OF DAVID BALTO, WASHINGTON, DC 

Mr. BALTO. Chairman Kohl, thank you for inviting me to testify 

before the hearing today. I’m here to answer three questions for the 

committee: is satellite radio the relevant market for antitrust analysis? The answer is yes. Does this merger pose significant anticompetitive effects? The answer is yes. 

Is the promise of regulatory relief an adequate substitute for 

competition? The answer is, absolutely not. Agreeing to some form 

of regulatory relief to substitute for competition is a Faustian bargain which history has shown never pays off for consumers. 

Let’s go through each of those three points. Listening to the 

speakers today I was reminded that 10 years ago Staples and Office Depot sought to merge in away that is really similar to this 

merger. Two innovative companies that had created a new product 

said, it’s time to call a truce, let’s merge. 

When they attempted to justify the merger, they said everything 

you can buy in an office supply superstore you can buy someplace 

else. We account for only 6 percent of the total sales of office supplies in the United States. The FTC challenged the merger and the 

court enjoined it. 

What the court said was the mere fact that a firm may be termed 

a ‘‘competitor’’ in the overall marketplace does not necessarily require that it be included in the relevant product market for antitrust purposes. 

When the court looked at what office supply superstores offered, 

it said Staples and Office Depot offered was something different 

than what was offered by all these other forms of distribution that 

sold identical products. The same is true of XM and Sirius and the 

alternatives that they suggest are competitors. 

Let’s just look at that. Turn to page 3 of my testimony and look 

at this statement from Sirius’s web site: ‘‘The biggest difference between Sirius is that it’s commercial-free, it offers you music the 

way it should be, it gives you the breadth of programming no one 

else can match, and we give you live entertainment.’’

In my testimony I described how satellite radio is different than 

every alternative that the parties have mentioned: they have the 

capability of aggregating demand; they provide you ubiquitous 

service wherever you go; they provide you a greater level of product 

variety; they provide diverse formulated programming; they have 

DJs who figure out what the most entertaining forms of media are; 

then finally, although I’m not sure this is a credit to society, they 

provided unregulated content. I think if you look at each of those 

factors, you’ll see that satellite radio is different. 

But the key factor is, do these alternatives to satellite radio have 

the power to constrain price increases? That is not the case. Satellite radio has been able to increase prices in the past, unrestrained by other alternatives. 

The second factor, are there concerns about competitive effects? 

Absolutely. The most problematic merger is one that creates monopoly. Why? Because the antitrust laws don’t allow us to go in 

after the fact and second-guess the decisions the monopolist makes 

and say, for example, you’re charging too high a price. 

9

These parties have said don’t worry about the merger—we don’t 

compete as aggressively with each other, but that’s belied by the 

statements on their 10(k) and on their web sites. 

They are also suggesting don’t worry, there’s new technology 

that’s right around the corner that’s going to change everything. 

When I was an FTC staff attorney we heard that argument all 

the time and we accepted it when that technology looked like it 

was truly right around the corner. The Merger Guidelines and the 

law make clear that, for new alternatives to be in the market, to 

serve as a likely restraint on anti-competitive conduct, they have 

to be timely, likely, and sufficient to prevent competitive harm. 

And by timely, we mean a 2-year period. 

Now, I don’t think those alternatives can meet that standard, but 

even if they could, none of them offer the cluster of services that 

are offered by satellite radio. 

Finally, let’s talk about the promise of a benevolent monopolist—

the merging party’s promise not to increase prices. I’m here to tell 

you what you already know. In over 100 years of the Sherman Act, 

courts have almost never permitted anti-competitive conduct or 

anti-competitive mergers based on a promise not to increase prices. 

Sometimes State regulators have agreed in the context of hospital mergers to cap prices and consumers have suffered. At the 

end of the day, you’re left with a monopolist and a monopoly is forever. Consumers suffer through higher prices and less service. 

In ways, the promises here remind me of the movie, ‘‘It’s a Wonderful Life’’. You will remember, Mr. Potter makes an offer to 

George Bailey to sell out to his bank, which would give him an monopoly. Well, we know from the movie what would have happened 

if that had occurred. There would have been less affordable housing, fewer small businesses, and the loss of countless other benefits 

for consumers. 

Now, I’m not suggesting the management of the merging satellite 

radio monopoly have the nefarious desires of Mr. Potter. However, 

Mr. Kapra teaches an important lesson for this committee, and for 

antitrust enforcers: it is only competition that can guarantee consumers the full range of benefits in terms of low prices, better services, and greater choice. Nothing can replace competition. 

[The prepared statement of Mr. Balto appears as a submission 

for the record.] 

Chairman KOHL. Thank you for your statement. 

Before we start with our questions, we very much want to recognize and welcome the Ranking Member on this committee, Senator 

Orrin Hatch. We’d like to hear whatever comments he wishes to 

make. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I am sorry I am 

a little bit late to this hearing, because I know how important it 

is. It is an important antitrust set of questions. 

Does the merger of satellite radio’s two broadcasters, XM and 

Sirius, violate antitrust law? Now, I have looked forward to this 

hearing and I certainly have enjoyed the papers that have been 

submitted. 

10

The question is, will consumers be held hostage by a monopoly 

that is able to charge exorbitant rates for services that cannot be 

found anywhere else? Will the efficiencies that are created permit 

additional services and content to be provided at the same cost to 

consumers? 

First, I think we’ve got to look at the legal question. In order to 

do that, we of course have to know what the law entails. Simply 

stated, there are three Federal antitrust laws applicable to horizontal mergers such as the one we’re examining during this hearing. 

First, is Section 7 of the Clayton Act which prohibits mergers 

which ‘‘may substantially lessen competition’’. The second major 

statute is Section 1 of the Sherman Act, which prohibits mergers 

that constitute an unreasonable ‘‘restraint of trade’’. Finally, Section 5 of the Federal Trade Commission Act prohibits ‘‘unfair methods of competition’’. 

But these are general phrases which can mean a number of 

things, so how do we better define them? For that, many turn to 

the commentary on the horizontal merger guidelines of 2006, jointly published by the U.S. Department of Justice and the Federal 

Trade Commission. 

Though not formal governmental rules that bind these agencies’ 

actions, they are widely consulted and exert a broad influence on 

antitrust analysis. So how do the commentaries interpret the laws 

we just described? 

The agencies state that ‘‘the ‘core concern of the antitrust laws’ 

is the creation or enhancement of market power. In the context of 

sellers of goods or services, ‘market power’ may be defined as the 

ability to profitably maintain prices above the competitive levels for 

a significant period of time. Market power may be exercised, however, not only by raising price, but also by reducing quality or slowing innovation.’’

Therefore, that may be one of the central questions before us. 

Will this merger unlawfully create or enhance market power? How 

do we begin to answer this question? Once again, the guidelines 

provide a road map for us to launch our inquiry into the form of 

a five-part test which is used by the DOJ and FTC to analyze 

mergers. 

Now, I believe for this hearing that the first prong of that test, 

called market definition and concentration, offers us the greatest 

insight into the legality of this transaction, which leads us to examine how we would define the market in which XM and Sirius compete. 

The guidelines ‘‘indicate that the relevant market is the smallest 

or narrowest collection of products in geographic areas which a hypothetical monopolist would raise prices.’’

In the case before us, that means we have to examine questions 

such as, satellite radio and terrestrial radio are part of the same 

market. If there are sub-markets, what role will future technologies, such as Internet radio, play in defining this market? 

Should consumer electronics like I–Pods be considered as part of 

this market, just to mention a few aspects? 

Now, these are important questions, Mr. Chairman. I appreciate 

the witnesses and their elucidation in these areas and, frankly, 

11

hope that we can do what is in the best interests of consumers, and 

also keep these innovative, really spectacular products moving 

ahead for the benefit of the American people. I will do everything 

in my power to try to make sure this comes out all right. 

Thanks, Mr. Chairman. 

Chairman KOHL. Thank you for your statement, Senator Hatch. 

Senator Brownback, do you have any comments to make? 

Senator BROWNBACK. I don’t, Mr. Chairman. I would like to ask 

questions, if I could, of the panel when the appropriate time comes. 

I want to thank you for holding this hearing. It’s a topic I’m very 

interested in and would like to pursue with some questions for the 

panelists. 

Chairman KOHL. We appreciate your being here. 

We’ll start with questions for Mr. Karmazin. 

Mr. Karmazin, critics of your deal claim that this deal with result in a monopoly, leaving customers with no choice but to pay a 

likely price increase whenever it occurs. 

Now, we know that you defend your merger by claiming that you 

won’t have any power to raise price because you really compete 

with a multitude of ways consumers can obtain audio content. But 

as I said in my opening statement, the burden—and we all understand this—is on you to prove your position. 

So there are two major issues we need to examine today. First, 

will this merge give you the power to raise price to consumers? And 

second, how do we define the market? That is, what services and 

devices do you really compete with? So I’d like to start by asking 

some questions about the first issue. 

I know you promised not to raise prices right away, but a primary concern of antitrust analysis is not the promise, but the ability of the merged firm to raise prices after a merger, whatever 

promises are made before the merger. 

Mr. Karmazin, after this merger, consumers who wish to listen 

to satellite radio will have only one company from which to choose. 

So isn’t it reasonable for us to believe that this merger will give 

the combined Sirius/XM the ability to raise the price for satellite 

radio consumers? 

And don’t you believe that the consumer who has already decided 

to pay $12.95 for satellite radio would pay another dollar or two 

if you decided to raise the price after the merger? 

Mr. KARMAZIN. Thank you, Chairman. No, I do not believe that 

we have the ability to raise prices to a vast majority of the audience. If you think about it, we charge $12.95. And by the way, 

we’ve charged $12.95 from the day we began service 5 years ago, 

so we have not raised our price ever. 

That includes when we only had 100 channels as compared to 

the approximately 135 channels. The reason that the price has not 

been raised is because we are competing with free. I don’t quite understand how, if you raise your price a couple of dollars to $14.95, 

you’ll be better off competing with free than if, in fact, you’re competing with free. 

Also, the argument that says that we are competing with XM, if 

we had all of XM’s subscribers, so instead of them having the 7.6 

we managed to get all of them or they managed to get us, that is 

not a successful business. We’re looking at the 300 million AmeriVerDate 0ct 09 2002 11:28 Sep 07, 2007 Jkt 037565 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37565.TXT SJUD1 PsN: CMORC
12

cans that are there today, not us winding up just with the number 

of people who are subscribing to satellite radio. 

So, our belief is that the vast majority, over 90 percent of the 

American public, are getting their radio for free. We want to convince them that our 43 cents a day that we charge is money well 

spent, and by raising the price we don’t see it. 

But we’ve also said that, you know, we’ve set it, our actions have 

demonstrated it, that we have not raised our price in the 5-years 

for the reason I told you why we haven’t, is that we are willing to 

be held accountable. If that’s the issue, it seems simple. I mean, 

if the argument is that we’re going to raise our price, we’re not. 

We’re not. 

So it sort of seems to me it solves that issue, and I’m sure somewhere in the government somebody could find a way to make sure 

that we don’t raise our price if we’re saying we aren’t going to raise 

our price. 

Chairman KOHL. Well, when you say you’re not going to raise the 

price, can we take you at your word and subject any price increases 

over the time duration of your company to some sort of ratification 

by some bureau, you know, of government? 

Mr. KARMAZIN. Excuse me. I’m open to working—

Chairman KOHL. Some bureau of government. 

Mr. KARMAZIN. I’m sorry. I’m willing to work with the regulators 

on what we need to do to give assurance that, as a result of this 

merger, there’s not going to be a price—as a matter of fact, what 

there is going to be, is a lower price. All right. A lower price. 

And we have said that, today, the lowest price entry is $12.95. 

We’re going to offer a service that will be available for $8.95 or 

$9.95, or some lower price, mainly because of the synergy of the 

merger. 

You know, our company, last year, lost $1 billion. And by the 

way, the NAB representative is correct, we’re not making a failing 

company argument. But we’ve lost $1 billion last year and we’ve 

lost, cumulatively, $3.8 billion. The way we make this company, is 

a profitable company. The way we do it, is by getting more subscribers. We don’t see how you get more subscribers than you have 

today by raising the price. 

Chairman KOHL. Initially that’s true. Then that’s how you build 

a business. You keep your price at a certain point, and when your 

subscriber level gets to the point that you require it to be, and if 

you’re in a monopoly business, if we could demonstrate that it is, 

then you raise your price. 

It’s a business model which you have a perfect right to pursue, 

if we allow you to pursue it. There’s nothing, per se, illegal about 

it. But again, you said we are not going to raise the price. You keep 

on saying that, and that’s great. 

Are you, as a condition of merger then, ready to be regulated in 

terms of price increases, if at all, if ever or whenever, by having 

to go through some kind of an independent agency to get authority 

to do that? It’s pretty much of a yes or a no. Are you? 

Mr. KARMAZIN. It’s a yes or a no. I’m willing to say to you that 

we believe the marketplace will control it, and our statement. But 

if, in fact, there is any proposal or any condition, we would be open 

13

to hear exactly what it is because we want to do this merger, Senator. 

The reason we want to do it, is that there are benefits to our 

shareholders, which you’ve pointed out, and we’re not ashamed of 

that. We believe that that is a fact. But we’re willing to make it, 

also, a benefit to the consumer and we’re open to sit and work with 

the FCC, and the DOJ, and this oversight Committee in giving you 

the assurance that what we’re saying, we want to be accountable 

to. And I don’t mean just for the first year or two. 

Chairman KOHL. So in theory, while you’re not agreeing to this 

in fact, but in theory, you would be willing to consider a discussion 

that would subject any intended price increases to oversight, regulatory oversight? 

Mr. KARMAZIN. It seems—

Chairman KOHL. Yes? 

Mr. KARMAZIN.—totally unnecessary, but it strikes me that if 

there’s something you want us to consider, we’d be willing to consider something. 

Chairman KOHL. All right. I’ll ask one or two more questions, 

then turn it over to Mr. Hatch. 

Let’s talk about market definition, Mr. Karmazin. You contend 

other means of receiving radio entertainment, such as over-the-air 

radio, I–Pods, and Internet radio are all part of the same market. 

But even if we define the market this broadly, wouldn’t it be appropriate to believe that Sirius and XM are their own two closest 

competitors? When we look at price and service competition and innovation, aren’t you basically targeting each other today? 

Don’t XM and Sirius offer a unique cluster of services in audio 

entertainment and news options not provided by any of the other 

entities? I recognize that you can get some of these on I–Pods, 

some on over-the-air radio, some by singing to yourself, in fact. But 

no one else offers the cluster of options, isn’t that true? 

Isn’t it true that Sirius and XM are your own primary and main 

competitors, that the services you offer—which is really what 

you’re asking $12.95 for—are unique and distinct and different 

such that you can ask $12.95 a month, and maybe more? If you 

weren’t offering a distinct service not obtainable in any other medium, how could you get away with charging $12.95 when they’re 

charging zero? 

Mr. KARMAZIN. And the reason for it is that we have convinced, 

at this point, between two companies, 13 million of the approximately 300 million Americans that the services that we offer are 

worth subscribing to. 

And if you ask me, do I think about how I’m going to get more 

of XM’s subscribers, no, I think more about how I’m going to get 

more Clear Channel listeners to become subscribers. 

We do very little churn between the two companies. If you take 

a look at the number of people who leave one service and subscribe 

to the other, that number is very, very tiny. So the competition is 

free radio. It’s not a technology that is going to be here 2 years or 

three years from now, it’s technology that exists in the marketplace 

today. 

XM is a competitor, but I will tell you that CBS and Clear Channel are better competitors. If I had to set my sights on who is the 

14

one who I think about more, who is the one I’m looking to get subscribers from, it’s far more from them, the terrestrial radio, than 

it is satellite. 

Chairman KOHL. Well, of course, because at the moment, because 

they’ve been in business all these years. You’ve only been in business for a few years. You haven’t developed your model yet. You 

haven’t figured out how to do it, which you will. Of course they 

have most of the customers at the moment for the business, and 

they’re free. But they’re your main competitor, I think. 

And Mr. Balto, I know you have some very strong feelings on 

that. Would you express yourself? 

Mr. BALTO. Yes. Let me start off with just the point about regulation. Three things to keep in mind. First of all, a monopoly is forever. There’s no question here, you’re only going to have one satellite radio if you agree to this. 

Now, are you willing to agree to some form of regulation that 

also is forever? Because otherwise your grandchildren are going to 

be paying monopoly prices. 

Second, I think the FCC’s record in regulating in this and adjacent areas is not a good one. If you look at the problems with cable 

regulation, they don’t show a terrific record of being able to 

effecitvely regulate a monopolist or near-monopolist. 

Finally, regulation might cap the prices of satellite radio, but it 

doesn’t protect other forms of competition. It will not protect the 

competition that would lead the two of them to compete to lower 

equipment prices. It doesn’t protect the competition that would lead 

to them providing greater product variety and greater choice. So, 

I think regulatory relief is inadequate. 

As to the relevant market, if I’m in a small town in Wisconsin 

or Utah, my terrestrial radio options are extraordinarily limited 

and none of the rest of these alternatives, none of them, can provide the same cluster of services that satellite radio provides. 

Just as the court found when it looked at the Staples/Office 

Depot merger, satellite radio offers a distinctly different service. No 

other office supply distribution was comparable to going and shopping at a Staples or an Office Depot, even though you could get the 

same things elsewhere. 

Chairman KOHL. Thank you. 

Mr. Hatch? 

Senator HATCH. I was a little upset at your bringing Utah into 

it, is all I can say. 

[Laughter.] 

Mr. Karmazin, most of our concern is about the content of your 

programming and what the content will look like if the merger is 

finalized. Specifically, I understand that both XM and Sirius have 

faith-based music channels. Now, is it reasonable to believe that 

the number of these channels will be reduced in size if this merger 

goes through, or at least cut in half? 

Mr. KARMAZIN. No. I don’t think it’s reasonable to assume that 

at all, mainly because of the popularity of the Christian channels 

that we are currently broadcasting. So, they are some of our popular channels and you should not automatically assume that there 

will be a reduction. 

15

Senator HATCH. OK. As you know, I have dedicated a considerable portion of my service here in the Senate to protecting children. 

I was one of the principal authors of the Adam Walsh Act, just as 

an illustration, and the author of the SCHIP bill, et cetera. 

Now, what actions are you taking now, and what actions will you 

take in the future if this merger is finalized, to protect children 

from listening to some of what I would term more aberrant programming that may be currently offered by Sirius? 

Mr. KARMAZIN. Yes. We believe that parents, obviously, should be 

able to control the content that is coming into the car or into their 

home. We currently are able to, unlike my days in terrestrial radio 

where there was no way of restricting what comes into the home 

in over-the-air radio, we have the ability to black out channels. 

Either the consumer can do it on their own device or, in fact, we 

can do it from the head end to make sure that any channel that 

somebody doesn’t want is not there. We also, earlier this afternoon, 

put in a filing with the FCC of our license and included in the license what we have said in our application, is that anybody who 

chooses not to receive any content, any adult content, not only has 

the ability to block it, but there would be a cost reduction to their 

bill in a more a` laˆ carte way. 

So that the argument is that if somebody doesn’t want it, it’s not 

only that they’re not getting it, but they’re also not subsidizing it 

somewhere else. So we do believe that we are entitled to have content that adults want to hear. We are restricting it. It is a pay 

service. We’re making sure that that the parents have all the information on that content and they can restrict it and not pay for that 

service. 

Senator HATCH. Well, thank you. Now, your underlying contention in promoting this merger is that the satellite’s true competitors are other radio platforms, including music played over cable 

and the Internet. True competition, however, is premised on equal 

footing. 

Do you agree then that satellite services should be required to 

protect content in the same way that cable and Internet services 

are required, under Section 114 of the Copyright Act? 

Mr. KARMAZIN. Yes. 

Senator HATCH. Ms. Quass, when reviewing a merger and defining a relevant market, the Department of Justice and the FTC are 

supposed to look for the ‘‘smallest collection of products in geographic areas within which a hypothetical monopolist would raise 

price significantly.’’

Now, some such as Mr. Balto would argue, with some merit, that 

satellite radio is a separate market, independent of terrestrial 

radio, therefore, the merger should be evaluated in narrow terms. 

That would be the argument. 

If so, why does the National Association of Broadcasters take 

such a particular interest in this merger? Aren’t you very concerned that satellite directly competes with terrestrial radio? 

If that’s true, why then should the Department of Justice and the 

FTC not look at this transaction in terms of a market that includes 

satellite and terrestrial radio? 

After Ms. Quass answers, I would very much like to hear Mr. 

Balto’s thoughts as well. 

16

Ms. QUASS. Thank you, Senator. Let me see if I can answer that 

question in terms of the market. The satellite radio market is really XM and Sirius. They compete on a national platform and are a 

bundle of national mobile digital audio channels that, in and of 

themselves, are the only two that can provide that function. 

XM and Sirius compete with local broadcasters in the markets 

that we serve. As was mentioned, it’s all about share of audience. 

As was also mentioned, it’s not a level playing field. 

While we don’t disagree that a competitive field is what we operate in and what we welcome, and the challenges that it brings, an 

unfair playing field severely hampers our ability to perform the 

services that we provide on a daily basis. 

There are a number of reasons that XM–Sirius and the proposed 

monopoly are of concern to local broadcasters. One is, as I mentioned, an unlevel playing field. We cannot provide the same type 

of services. We cannot bundle services to provide 200 and 300 channels; we can barely do 6 or 8. 

We do not have two revenue sources with which to be able to operate from an advertising, and also subscription, model. We, unfortunately -or fortunately, depending on how you look at it—operate 

within constraints of coverage areas that are granted to us by our 

license, where we protect not only fellow broadcasters who have 

signals that we try not to interfere with, we also have public service obligations that, I might add, broadcasters take very seriously. 

We feel it’s very important to live and to work in the communities that we serve and to become an integral part of it. But the 

pressures that we face to compete cannot be matched with XM and 

Sirius and their ability to be able to provide national mobile bundling of services. 

You know, in a competitive field, if you look at our competitive 

environment in a Warsaw or Salina, you name the community, 

what we have the ability to cover in our area to cover is limited, 

where XM and Sirius together, if they were the U.S., we would be 

a cornfield. So it’s sort of an unfair playing field which we have to 

deal with. 

And another concern is the ability to be able to control, potentially, lock-up programming that we would not have the ability to 

be able to provide as a result of this monopoly. 

Mr. BALTO. First let me explain the point about the smallest collection of products. The reason why the antitrust laws define markets in terms of the smallest collection of products, is because the 

law says that it protects competition in any line of commerce, any 

group of consumers is protected. 

So even if we’re talking about only 14 million people who vote with their pocketbooks every month and pay $13 a month, that’s 

still a group of people who deserve the protection of the antitrust 

laws. 

Second, why are the interests of the NAB coincident with the interests of consumers, and I think they are? The reason is the programming point that Ms. Quass just made. A monopolist in satellite radio can get exclusive programming and harm traditional 

radio and consumers. 

One of the big controversies in cable TV and satellite TV is exclusive rights to programming. Your colleague, Senator Specter,

17

has raised serious concerns on the issue involving NFL Sunday 

Ticket. 

Now, exclusive programming is not at issue right now with satellite radio, but who knows? Maybe a few years down the line, 

maybe when they become a monopolist, then all of a sudden the 

only way we may be able to have access to Washington Redskins 

broadcasts are by subscribing to satellite radio. 

Let me make one more point about the faith-based radio that you 

started with, Senator Hatch. If I wanted to come up with a Jewish 

radio station and broadcast it nationally, I have two alternatives 

who I can currently play off against each other, XM and Sirius. 

And, like in any competitive market, that will give me some kind 

of advantage—a greater ability to secure an outlet and get a fair 

price. 

But if they become a monopolist, there will be only one person 

who is going to determine what gets on satellite radio. If you want 

to have a regulator, that’s fine. To protect content diversity you’ll 

have an FCC religious regulatory regulator determining what the 

religious content of satellite radio is. I don’t think that’s something 

anyone could stomach. 

Senator HATCH. Ms. Quass, let me just say, in your written testimony you state that ‘‘XM and Sirius will be able to exercise virtually unlimited market power in the national radio market, to the 

detriment of consumers.’’

But is that really the market that we should be primarily concerned about? For instance, is not the real profit market found with 

those customers in such traditional market segments as the socalled ‘‘morning drive’’? And are these not the customers that 

you’re truly concerned about? 

Ms. QUASS. Well, Senator, certainly I’m concerned abut the customers that listen to our radio stations in a morning drive situation. But we really need to make the determination here between 

one entity that would have the ability to control programming on 

a national level. 

I have the ability to control—even if you aggregate all of the 

radio stations across the U.S., we all individually only have the 

ability to control the area which our coverage area allows us. We 

are not able to act as one unified body across the United States unless the rules change and, all of a sudden, we have one entity that 

all 14,000 radio stations—which I doubt seriously is a possibility. 

So the concerns that broadcasters have is, our business is content-driven. Granted, it’s local content. It’s a very big part of what 

it is that we do. We serve, on a day-in and day-out basis, those people in our local communities, giving them the kinds of service that 

we take seriously. We’re constantly trying to improve programming 

so that we continue to have an audience that listens to us. 

But there is nothing that we can ever do that will be able to aggregate the kind of audience and have the kind of control that one 

organization will, to be able to lock up content and programming 

and take it away from local broadcasters, to many of us, which is 

exactly what we try and do on a daily basis, to bring to our local 

communities. 

Senator HATCH. My time is up, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Hatch. 

18

Senator Brownback? 

Senator BROWNBACK. Thank you, Chairman. I appreciate it. I 

thank the panel for being here. 

I’m going to ask a couple of questions along the line of content 

and the content monopoly area, that I want to tie these in together. 

Mr. Karmazin, thank you for being here and thank you for stopping by my office this morning. We’ve crossed swords in the past 

on content issues. I hope to be very respectful of your business 

model, but I think I have got some comprehension and understanding of it a bit, too. 

It seems as if a fair portion of your business model is based upon 

featuring explicit sexual material. I’m sure you might categorize it 

as somewhat differently, but I think there are others also that 

would categorize it as pornographic. 

I want to talk with you about that, because you can do that, 

where Ms. Quass’s stations cannot. She is regulated in that field 

on content for the public good. We’ve had a big tussle about that 

here. We’ve even increased the fines now tenfold for her set of stations that she has, radio and television, on content and material 

that would be considered overly sexual, overly violent. 

There have been discussions about how you define that, a lot of 

discussion, a lot of difficulty. But, still, you are not subject to that 

set of regulations, and are obviously not willing to be subject to 

that set of regulations, and that’s part of your business model. 

Is that a part of your business model you’re going to continue 

even as a merged set of companies? 

Mr. KARMAZIN. Yes. We provide content for a broad spectrum of 

the American public, including some adult programming. I mentioned what we do in allowing people to not have that content that 

they may not want to come into their home. 

But, yes, we believe that not all content that’s available needs to 

be only content that’s acceptable to children. I don’t believe that 

was ever the intent of anyone who made the rules. And I also understand, it’s been a while. 

I was in the terrestrial radio business for about 40 years and I’m 

not following latest developments, but I also understand that the 

local broadcaster has a safe harbor as it applies to that, not that 

they necessarily want to use it, but the fact is that there is a safe 

harbor for them to be able to do adult content as well. 

Senator BROWNBACK. And would you be willing to submit yourself to the same regulations as the terrestrial broadcasters would 

on content and safe harbor? 

Mr. KARMAZIN. No, I would not. 

Senator BROWNBACK. All right. 

Mr. Chairman, I’d like to enter into the record, if I could, the web 

pages for Sirius Satellite Radio. These are three pages I’d like to 

ask unanimous consent to enter into the record. 

Chairman KOHL. Without objection. 

Senator BROWNBACK. And this is Playboy Radio. Question & Answer, I believe, is one of your channels. Night Calls is one of your 

programs I believe you listed here as one of your signature shows: 

‘‘Two legends of the adult industry, special celebrity guests will 

keep the dialog entertaining, the temperature rising,’’ is how you 

describe it here in your materials.’’

19

Private Calls is a daily show: ‘‘Sharing most intimate moments 

with special guest hosts and porn stars. We’ll give you a peek into 

their lives,’’ is the way you describe it on your web sites. 

Sexy Stories is a daily show that you have: ‘‘Finest providers of 

sensual audio in the entire world, presenting 60 sizzling minutes,’’ 

I believe, is how you describe it in your own material. 

Ms. Quass, are these shows that you can do in over-the-air radio 

broadcasting? 

Ms. QUASS. No, they are not. And I might also just add that, 

while I appreciate the concern for being able to opt in and out of 

programming by the subscriber, we’re also concerned about the 

ability for some of the technology that is used to carry satellite programming and the ability to bleed through into terrestrial or overthe-air radio without concern for whether or not that individual 

opted in or out, as a way to be able to also further enhance the 

concerns that we have. 

Senator BROWNBACK. Mr. Karmazin, I mentioned to you in the 

meeting we had this morning about the issue of the spread of pornography in the culture and in society. I mentioned a book to you, 

Pornified. Actually, we held a hearing in this Committee on the 

spread of pornography. 

I mentioned to you as well about, I think you said, well, OK, we 

want to maintain material for adults and we’re not going to let 

children get into this material. I mentioned to you about, this does 

impact children. 

In a recent meeting of the American Academy of Matrimonial 

Lawyers, two-thirds of the divorce lawyers who attended said that 

excessive interest in pornography played a significant role in divorces in the past year. 

Pornography, by itself, has begun to arise with alarming frequency in divorce and custody proceedings, according to divorce experts. This is a relatively recent phenomena. One expert stated 

that pornography had an almost non-existent role in divorce just 

seven or 8 years ago. 

I mention those two you because I don’t know—and maybe you 

do believe this—that this is done in a vacuum or that this can be 

controlled in just an adult atmosphere, so therefore it has no impact on children or the broader society. I think the body of evidence 

is building that it isn’t done in a vacuum and that it does have an 

impact on a broader society. 

As I mentioned to you this morning, I’ll be sending you this book 

and I’d appreciate it if you have a chance to review it. 

Mr. Balto, I wanted to ask you, on this point, if we grant this 

monopoly and this monopoly has this ability to market a particular 

type of material, is that something we’re going to see evolve over 

time? 

You seem to think that we’re not very good about regulating monopolies. Is this going to be something that will be used in marketing by a monopoly over a period of time or have you had a 

chance to have a thought about this? 

Mr. BALTO. Thank you for the question. I think, again, you can 

regulate in this area. You have chosen not to regulate satellite 

radio in this area and that’s something you can address. 

20

However, what you have right now is competition between two 

satellite radio services and this has an impact on content. If you 

look at the web site of XM, they specifically identify the sort of Xrated radio programming and instruct how to install parental controls. Sirius does not provide this information. 

That occurs because there’s always a need for XM and Sirius to 

differentiate their products. And who knows? Maybe one day it 

leads to one of them saying, we’re not going to have adult content 

on our satellite radio, we’re going to differentiate ourselves. 

If you accept the offer that these firms propose, you won’t have 

that competition, perhaps leading to the kinds of programming 

choices to keep this kind of content off the radio. 

Senator BROWNBACK. Mr. Karmazin, would you agree right now 

to not put pornographic material on the combined stations? 

Mr. KARMAZIN. Senator, I really don’t know what you would categorize as pornographic material. So, you know, much like I said 

to you, I’d be welcome to buy the book, but I’ll take you up on your 

offer to send it to me free, I’d be interested in knowing if satellite 

radio is covered in that book as being one of the issues that lead 

to pornography. 

I think one of the issues is that we are a believer in the First 

Amendment. I’ve been a broadcaster for a long time. I stand strong 

in that regard and I believe that, in the area of indecency, that 

there is the ability to disagree over what might be considered indecent. We certainly are not interested in airing, you know, any obscenity. I just don’t know, sir, what you would call pornographic, 

or what somebody else would call pornographic. 

Senator BROWNBACK. So you’re not willing to say, now, by any 

definition, that you will not limit your material on pornography. 

Mr. KARMAZIN. Senator, it’s an easy ‘‘yes’’ for me to give, but I’m 

not sure that I can truly live up to it because I’m not sure that I 

understand what the standard would be, and I don’t want to just 

give you lip service. So the answer is that, no, I’m not able to give 

you that commitment. 

Senator BROWNBACK. Well, I thank you for your candor on this. 

We’ve had discussions before. We’ve got a big problem in the country on this. I know, perhaps, you don’t see it as much. But the National Council on Sexual Addiction and Compulsivity estimates 6 to 

8 percent of Americans are sex addicts, and that almost all of them 

begin with pornography. 

Other studies estimate that at least 10 percent of the entire population is dealing with sexual addictions. Forty percent of sex addicts will leave or lose their spouses; 58 percent of sex addicts will 

have severe financial difficulties; 40 percent of sex addicts are professionals who will lose their profession; 27 percent of sex addicts 

will lose their jobs or be demoted. I realize that’s not your issue or 

your problem, but it is mine, and I think it is the country’s problem. 

We need to have respect for the First Amendment, but we also 

have to have respect for what’s taking place here. You’ve got a particular business model taking advantage of an area that Ms. 

Quass’s group cannot, thankfully, take advantage of. 

So to put that now in monopolist hands does seem to raise a significant question in a big area, and an area you’re not willing to 

21

say, honestly, that you’re willing to limit yourself to. So, I respect 

that, but I do have problems with it, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Brownback. Just to get 

back this whole discussion of what we’re talking about here today, 

which is what all of us are doing, of course, you know, I have to 

lay it out to you, Mr. Karmazin, and to the panel members, repeating much of what you said and trying to see it in the context of 

the totality of what we’re discussing here. 

I think what you’re asking for, and you have every right to ask, 

is a unique monopoly, an ability to perfect a business model in 

terms of radio, or communication over the air, radio satellite, to 

present a product to the American people that is unrivaled, unequaled, and really not to be competed with just by the very definition of what it is that you are presently offering and want to, by 

combining with the other entity—it is so unique, that I think in 10, 

20, 30 years, it will be a business colossus in this country that 

would be almost unrivaled. 

It is not entirely different from having over-the-air television and 

one cable operator in the United States. I mean, we cannot imagine 

that being done in this country because the power and the profitability of that cable operator to attract all the most attractive 

events by being able to offer much more than over-the-air, like 

NFL, or the basketball, or the baseball, or whatever, they would be 

so profitable, so powerful, so dominant, with no competition, that 

over a period of time it would be a behemoth that probably the government would have to step in and reverse whatever decisions it 

had made not to allow it to go any further. 

To some extent, on a somewhat smaller scale, because radio is 

not television in this country today, but radio is huge. If you are 

given the power to have the only state-of-the-art, perfect radio 

presentation in terms of what you can offer that nobody else can 

offer, wow, what an opportunity over a period of time. You say, 

well, we only have, what did you say, 13 million subscribers. Fine. 

But if you were able to get the NFL for a zillion dollars, your 

subscriber level would go up to 100 million right away, 150 million, 

200 million, and you would do this because it makes good business 

sense to do it. That’s the only reason you would do it. 

So your ability to raise your subscriber level is only circumscribed by the kinds of agreements that you could, and would, 

make with the presenters of the most desirable kind of programming in this country. That’s what goes on on television. 

That’s why, you know, more and more sports television events 

are going to cable. More and more businesses, various business entities in the NBA, major league baseball, and the NFL are moving 

toward cable, because that’s where the real revenues are, and cable 

understands that and they’re snapping them up, one after another. 

The same thing will happen on radio, Mr. Karmazin, if you are 

put in a position to be able to do it, and you have every right to 

ask if there is nothing immoral, unethical, or even begin to say illegal at this time. But it’s another thing for us to grant you that permission, to be virtually unrivaled, unchallenged in this whole area. 

Now, just to finish up the question so you can answer. As I understand it, most all of radio is listened to in the automobile—not 

all of it, but the largest chunk. So what you are doing, and what 

22

you will continue to do, and you should, go to all the automobile 

companies and get them to produce automobiles that automatically 

have the technology to incorporate satellite radio so that people 

who buy a car just have to say, OK, start charging me $12.95 or 

whatever you’re charging, and I can have your satellite radio. They 

will do that just because people trade up. That’s America. We want 

more, we want better. 

As long as the price is somehow within what we can afford, 

which you will calibrate over the years, you will get everybody 

who’s interested in radio, just like more and more people are on 

cable nowadays. 

Over a period of decades, more and more and more people will 

gravitate to your business, and you have no competition. You have 

no competition. What a business! I might quit this job to go into 

your business. 

Mr. KARMAZIN. Senator, with all due respect, where do I start? 

You’re dealing with the fact that we are a monopoly. I assume 

you’re automatically assuming that the Internet does not exist and 

that there are no audio services on the Internet. 

I’m assuming, sir, that you’re assuming that when all of the car 

companies are providing a jack for somebody to plug their I–Pod 

into and the I–Pod has all of the content that’s available, including 

talk programming and sports programming because it’s available 

on the I–Pod, and I’m assuming, sir, that in the telephone, where 

the largest telephone companies are providing all kinds of content, 

not just music content, but sports content, and in your vehicle you 

take your cell phone and you put it into your dock and you have 

blue tooth technology and the content that’s in your cell phone 

comes right through the speakers on your radio, it is bizarre that 

the thought is that there isn’t all of this competition. There is all 

of this competition. 

We’re not talking about being a monopoly. I know the NAB has 

used those words about monopoly in this context. If it was a monopoly we wouldn’t have wasted our time in trying to get this 

merger approved. We understand people don’t like monopolies. 

What we’re saying is, there is all of this competition. And by the 

way, Mr. Chairman, we do have the NFL, and we’ve had the NFL 

for three reasons. We have the 6 million subscribers in spite of having every single NFL game that’s broadcast. 

The content that’s available on satellite radio, that same content 

is available on the Internet and it’s also available on cell phones, 

and it’s also available. The fact that there is this HD radio, and 

by the way, there is no reason that HD radio is not ultimately 

going to evolve into a subscription service. They may choose, in the 

early days, to not have that have a second stream of revenue. 

The last point that I think is worthy of mentioning, sir, is the 

fact that our total advertising—now, we have been in business now 

for well over 5 years. Our total advertising, of the combined company, is under $70 million. Under $70 million of $21 billion. To 

think that we’re dealing with a monopoly is just not reflective of 

the marketplace. 

Chairman KOHL. Well, just a couple of points. I–Pod, which you 

mentioned as your competitor—and of course, in a theoretical way 

it is—I–Pod has virtually no live broadcasts. So you cannot say, 

23

well, if you want to listen to the baseball game you can get it on 

satellite TV and you can get it on I–Pod. Well, that’s not true. 

Mr. KARMAZIN. If you want to listen to music, you can certainly 

get it on I–Pod. If you want to listen to—

Chairman KOHL. But is it true about sports? 

Mr. KARMAZIN. But sports is available on a cell phone, sir. 

Chairman KOHL. OK. But you mentioned I–Pod. 

Mr. KARMAZIN. And I mentioned cell phones. 

Chairman KOHL. Yes, you did. But—

Mr. KARMAZIN. So in the case of sports today, I don’t know if 

there’s anything in the technology that precludes the content owners of sports content from doing a transaction. 

Chairman KOHL. But today, I–Pod does not carry live sports. 

Mr. KARMAZIN. Not to my knowledge, sir. I agree with you. 

Chairman KOHL. And I just want to mention your web site. The 

Sirius Internet web site has a section on the merger in question 

and answer format. One question that is posed is, ‘‘Should I wait 

until after the merger ‘to get Sirius’?’’ And your answer is, ‘‘Are you 

kidding? Well, if you like commercials and you like listening to the 

same CDs for a week, and you like fiddling with your MP3 player 

while driving.’’ It says, ‘‘No, you’d be crazy to wait.’’

Well, Mr. Karmazin, isn’t this an explicit statement that you promote satellite radio as a very different—very different—and a very 

superior service that is not to be equated with all these other 

things that you’re mentioning? That is your business model. That 

is what you are trying to create. Once we give you monopoly, my 

man, over a period of years, because you’re smart, you know how 

to do it, you will do it. 

Mr. KARMAZIN. But Senator, you just made my argument. 

Chairman KOHL. How did I make your argument? 

Mr. KARMAZIN. Because you just read all of the factors that we’re 

talking about as to how we compete with terrestrial radio. We 

didn’t sit there and say that you shouldn’t do it because we’re competing with XM. All of those points that you just raised demonstrate the fact that we compete with terrestrial radio. 

Chairman KOHL. You have developed, and will develop much further, because you have the capacity in this technology that you 

own, to develop a business model which cannot be rivaled by any 

kind of a radio station in any market. 

Mr. KARMAZIN. Sir, it—

Chairman KOHL. We know that. I mean, that’s clear. If I want 

to hear any one of the football games on Sunday, or the basketball 

games every night, or the baseball games every night, if I want to 

hear any of them at will, the only place I can go, or will be able 

to go, is to your technology. 

Mr. KARMAZIN. No, because you can get those same baseball 

games on the Internet because they’re available. The NFL, the 

NBA, and the major league baseball all offer services where they 

have all of their games on the Internet. We have a deal with 

NASCAR to where we provide NASCAR on satellite radio. 

NASCAR is also available. 

Chairman KOHL. But isn’t it true that they will not be able to 

get it on the radio? They will be sidelined by your technology. 

Mr. KARMAZIN. No. 

24

Chairman KOHL. The radio will be sidelined by your technology. 

Mr. KARMAZIN. Terrestrial radio will still get their local games 

if they want to. 

Chairman KOHL. Local games, yes. But—

Mr. KARMAZIN. Excuse me. There’s Clear Channel and a lot of 

the broadcasters who operate nationally. This goes back a while, 

but the Dallas Cowboys—

Chairman KOHL. I want to ask you a question. Can you listen 

to Internet in your car as you drive? 

Mr. KARMAZIN. Yes. Wi–Fi if going to enable you to be able to 

listen to it while you drive. 

Chairman KOHL. That’s not entirely true. 

Mr. Balto? 

Mr. BALTO. I have four simple points. First, in terms of alternatives, remember the relevant market is the cluster of services offered by satellite radio. None of the rest of these things offer the 

cluster of services. None of them are in the relevant market. 

As to I–Pods, read page 6 of my testimony and you’ll see, it’s a 

cumbersome and uninteresting process to compete on your own by 

loading your own music, and then you miss the great DJs of Sirius 

radio. 

The second point. Are these things viable alternatives, Wi–Fi, 

HD radio? Remember that the merging monopoly has relationships, 

ownership interests with some of the major car manufacturers. Are 

they going to put HD radio in my car? Are they going to put Wi–

Fi in my car? I don’t think so. 

Third, technological change. What the merging parties are saying 

is, sometime in the future there’s going to be a sufficient technological change so we can’t exercise market power. If the deal makes 

sense for the merging monopoly today, it makes sense at that point 

in time. Let them do the deal then. Then we’ll know consumers 

won’t be harmed. 

Finally, let me make two quick points about efficiencies. First, 

they are saying there are efficiencies in terms of people being able 

to share content. They share content today, they can share content 

in any fashion that they choose to right now. 

Second, what Mr. Karmazin said was, ‘‘We are prepared to pass 

on some synergies in the form of lower prices.’’ Focus on those 

words: ‘‘we are prepared to pass on some synergies.’’ In a competitive market, they don’t have a choice. In a competitive market, they 

have to pass on those synergies. 

Competition is what drives XM and Sirius to offer better products and lower prices. If I’m a Sirius engineer and I invent the better mousetrap, the better radio tomorrow, they will introduce that 

product out on the market as quickly as possible. But if XM and 

Sirius is a monopoly, they can sit and figure out when it is they’d 

like to bring the product out to market. 

Chairman KOHL. Senator Hatch? 

Senator HATCH. Well, Mr. Karmazin, there are a few things I 

just don’t know about this, and maybe I can ask what may be very 

stupid questions. 

But as I understand it, the SEC has granted two licenses, one 

to Sirius and one to XM. Is that correct? 

Mr. KARMAZIN. Yes, sir. 

25

Senator HATCH. If you merge, will there still be an extra license 

available? 

Mr. KARMAZIN. No, sir. But there’s plenty of spectrum available. 

If the question is whether or not—

Senator HATCH. I guess my point is this. Let’s assume that you 

merge and that you really become much more successful so that 

you quit losing the billions of dollars that have been spent. What 

keeps another satellite company from coming in and competing? 

Mr. KARMAZIN. Well, I think the idea is that there is plenty of 

spectrum. There are plenty of competitors out there who have expressed an interest in doing the kind of content that satellite radio 

is doing. 

Senator HATCH. You’re saying that there’s nothing that says others can’t come in and compete with you. 

Mr. KARMAZIN. That’s correct. I’m saying that there’s nothing 

that stops somebody from using the WCF spectrum or using any 

of the spectrum that the—

Senator HATCH. I presume that if this merger takes place and 

you become much more successful, let’s say you get an audience of 

50 million people combined, I assume that others would want to get 

into this business. 

Mr. KARMAZIN. Well, I mean, that’s definitely a possibility. But 

I will tell you that if in fact we are successful, it is because we have 

been successful in convincing people to pay for radio. You know, 

the majority of the people are satisfied with free over-the-air radio. 

Senator HATCH. Well, I think the point I’m making is, you’re not 

foreclosing the market from others coming in. You’re just trying to 

make it a more efficient market so that both of you can survive, 

when you may not be able to survive if you don’t combine. 

Mr. KARMAZIN. Yes. I would like to think that we’re going to survive, so I don’t want to give that impression. 

Senator HATCH. Yes. You would put it in different terms. 

Mr. KARMAZIN. Yes. But I do feel that the reason that we are not 

offering lower prices for the consumer is because of our cost structure today. And I’m not talking about the cost structure of the content, I’m talking about the cost of our billions of dollars of infrastructure on satellites and the like, that this merger gives us the 

opportunity—not standing alone, this merger gives us the opportunity to, in fact, find cost savings that will enable us to reduce the 

price and, therefore, maybe enable us to get as many subscribers 

as you say we might be able to get. 

Senator HATCH. Now, I share Senator Brownback’s feelings about 

obscenity and pornography, but I also understand the problems 

that you have as people in the media. That is, unless the Supreme 

Court is going to define exactly what pornography and obscenity is, 

it’s pretty tough for you to have to make that definition for them. 

There is a right of free speech, even though I’d prefer not having 

those programs for our families. But I suspect that that’s more of 

an analysis than has been given thus far. That is, it’s pretty tough 

to define just what pornography and obscenity really is under current Supreme Court decisionmaking. 

Mr. KARMAZIN. Senator Hatch, I was a broadcaster back in the 

old days when we had the seven dirty words, and it was very clear 

26

that when you had the seven dirty words, no license that I was involved with ever used the seven dirty words. 

Senator HATCH. If you had a definition here, you would abide by 

the definition, wouldn’t you? 

Mr. KARMAZIN. Exactly. When I was a broadcaster, subject to the 

indecency rules, all I said was, tell me what the speed limit is and 

I’ll go by that speed limit. Tell me that it’s 55 miles an hour and 

I’ll follow it. 

And I’m sort of troubled by the fact that the NAB, which used 

to be more interested in protecting those free rights, have gone the 

other way in saying that, instead of sitting there and saying, let’s 

clarify the rules, they’re saying, well, just make sure, as vague as 

they are, just subject satellite radio to them as compared to getting 

the Supreme Court, maybe, to make those rules clearer. 

Senator HATCH. I see. 

Mr. Balto, I was very impressed with your written testimony. 

Clearly, there is a strong argument that the regulatory agencies 

should view this transaction narrowly. But aren’t we living in a 

new world and a far more dynamic economy? 

Should we not look at the regulatory approval of Whirlpool/

Maytag mergers as our guide to the future? Specifically, under a 

traditional analysis, the Department of Justice would have placed 

great reliance on the market share that the resulting appliance 

manufacturer would have enjoyed. 

However, these are different times when globalization and the 

speed of commerce are rapidly changing markets. Therefore, the 

Department worked with the parties to the merger and developed 

a detailed market analysis. That analysis showed that the merger 

would not have an ill effect on competition since oversees competitors were quickly expanding their market share. 

It also showed that appliance retailers could, and do, quickly 

change the appliance brands that they choose to carry in their 

stores, only further underlying the premise that a traditional market analysis might not be as effective in this situation. 

Now, is this not similar to the XM and Sirius proposed merger 

in the sense that, though the guidelines support your argument 

that the market should be viewed narrowly, we are looking at a 

new market where satellite radio competes directly with terrestrial 

radio? 

Mr. BALTO. I think that’s a very good question. 

Senator HATCH. It’s a little long question. 

Mr. BALTO. No. I appreciate the question. It’s something that the 

antitrust enforcers and the antitrust courts always consider, the 

degree that the market is dynamic. 

First, should there be foreign entry into satellite radio into the 

United States, that would be just terrific. I don’t think that we’re 

about to see French satellite radio enter into the United States. 

But, more importantly, if you refer to my testimony, all of the 

technological changes that the parties are proposing are several 

years off in the future. I think it’s important to see this as being 

a truly dynamic market, but I think that dynamism—Senator 

Hatch, I should caution us to weigh even more heavily on enforcement. 

27

In the Office Depot/Staples merger, the parties said, look, there’s 

all these new entrants who are about to come in and enter and 

transform our market. And you know what’s happened 10 years 

later? None of those people entered, absolutely none. 

But what’s happened is, the number of superstores have increased from 1,000 to 3,000. If the court had allowed Office Depot 

and Staples to enter into a truce and create an office supply duopoly, then there would not have been anywhere near that level of 

increase in the number of stores. 

I think that you should credit the success of these two companies 

and the new products they’ve invented. You should credit how aggressively they compete with each other. That competition has 

brought benefits to millions of consumers and, because of that, they 

should not be allowed to merge. 

Senator HATCH. Ms. Sohn, I feel like we’ve been ignoring you. I 

don’t want to leave you out of this. But as you know, customers are 

one of the critical sources that the Federal agencies use for defining 

a market. Now obviously they’re the ones that know how and why 

they choose the products that they do. 

Now, how do you believe that consumers will react to a change 

in the marketplace if this merger is ratified? 

Ms. SOHN. Well, I just want to make it clear that Public Knowledge doesn’t take a firm position on the antitrust issue. I mean, we 

really think there’s a lot of information, private information, that 

we don’t have access to that will really determine whether or not 

the other competition in the market—and while it may not be identical it’s still competition—would really tamp down satellite radio 

prices. 

Here’s my concern. My concern really is with the hegemony of 

the broadcast industry. I remember, in 1992 when the FCC was 

starting to consider giving out, actually, at the time, four satellite 

radio slots. 

The NAB approached my colleagues and me at the Media Access 

Project and talked about all the ways they’d like to regulate the 

satellite radio industry. So, you know, for the past 15 years the 

broadcast industry has been trying to limit what satellite radio can 

do, basically trying to put it out of existence. That really is my concern here. 

We talked a little bit about the Direct TV–Echo Star merger 

which was disallowed. Sometimes I wonder, we didn’t take a position on that then, but that merger was disallowed. Cable prices 

have still gone up. As a result, the DBS industry was not able to 

compete against companies like Verizon and others in the recent 

AWS spectrum auction. 

My concern is whether, if you do not allow this merger, whether 

you’re going to have two weak companies that cannot compete 

against a 70-, 80-year-old broadcast industry that has done everything in its power over the last 15 years to try to hobble or regulate 

the satellite radio industry. 

Senator HATCH. I noticed in your written testimony that you 

state, ‘‘If the merger is ratified it should include provisions creating 

pricing choices, such as tiered programming.’’ Now, does not this 

open the door to greater price increases? For example, would not 

the merged company charge extra for its NFL package? 

28

Ms. SOHN. Well, that’s why, also, one of the other conditions is 

a price freeze on the combined programming package for 3 years. 

Now, there was some question about whether the price freeze that 

Mr. Karmazin promised at the House Antitrust Task Force Committee hearing that I testified at as well would have just applied 

to the current package or the combined package, and we are now 

calling for a price freeze for 3 years for the combined package. 

Senator HATCH. Mr. Chairman, if I could just make one comment. I know my time is up. This is an extremely interesting situation. You know, all of us here would like to please everybody. I, for 

one, believe that there ought to be competition. 

On the other hand, you know, this question of obscenity and pornography, you know, I’m totally opposed to it. I think we have too 

much of that on our current air waves, and also on our current television sets. 

But my point is, unless we have the guts to define it, and the 

Supreme Court has the ability to uphold the refinements that we 

make, it’s pretty hard to say that—you know, that you can’t put 

on what really is a free speech situation. 

But, you know, I don’t think it has much to do with this merger, 

but I would encourage Mr. Karmazin and others to kind of look at 

the interests of mankind as you go through this. You’ve indicated 

you certainly will; you’re not going to do something that is outside 

of the law. 

The question is, can you do some things that are inside the law 

that would be helpful to mankind? I would encourage you to do 

that. As far as I’m concerned, that’s about all you can say about 

that issue, although there may be more. 

But this is extremely interesting to me because I can see some 

ways where competition can exist. I can see a number of ways 

where people, Ms. Quass, are very concerned. But it’s a long way 

to have this approved, anyway, and we’ll just have to see what happens. 

But I have a difficult time—and maybe, Mr. Balto, you might 

want to answer this—understanding why, if they are successful 

after this merger, there would not be plenty of competition that 

would arise, and plenty of desire on the part of Congress to make 

sure that competition flourishes. 

That may be a question that should be asked only after we see 

what happens, but that’s my own personal—I just cannot see why 

there wouldn’t be a lot of competition here. 

Now, I also have a difficult time seeing why terrestrial radio 

can’t compete, or why it’s not a competitor, even though it may be 

at a disadvantage, if people can afford to pay the 13 bucks a 

month, or whatever it is that you pay for satellite. This is an extremely interesting case. I think this has been an extremely good 

panel, so I want to compliment each of you for your comments here 

today. 

Chairman KOHL. I want to get back to Senator Hatch’s point, because it’s central to this hearing and to this whole subject, the 

business of competitiveness. 

Mr. Karmazin, of course, is an ‘‘expert’’ and he understands his 

business. So, I’m going to ask a question by making a statement. 

It’s my understanding that the very high cost of launching a satVerDate 0ct 09 2002 11:28 Sep 07, 2007 Jkt 037565 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37565.TXT SJUD1 PsN: CMORC
29

ellite, literally billions of dollars, would make it virtually impossible for another satellite radio company to enter the market. 

Now, do you really believe entry by another satellite company is 

likely after this merger? And you people have thought about it. I’m 

sure you have a clear answer to that question. 

Mr. KARMAZIN. I do have a clear answer to that question. You’re 

asking whether I think there will be another satellite competitor, 

the answer will be, probably not. 

But I do believe that there is other technology and there are 

other frequencies. I don’t know what the magic is, whether you’re 

getting the content from a satellite or you’re getting the content 

from another kind of technology, but there is currently plenty and 

there will be even more competition in the future, probably not 

from another satellite company. 

Chairman KOHL. That’s a very important answer. I mean, that’s 

a clear—I appreciate your being very clear in your response. 

Senator HATCH. May I interrupt on that, Mr. Chairman? 

Chairman KOHL. Go ahead, Senator Hatch. 

Senator HATCH. Would it be similar competition? That’s the 

point. 

Mr. KARMAZIN. Yes. 

Senator HATCH. In other words, whether it comes from satellite 

or not is not the issue. It’s, would it be similar competition? 

Mr. KARMAZIN. And that’s what we have said, is that we believe 

that how you get the signal into the car, whether or not it would 

go by Wi–Fi or whether, it go by cell phone, or whether it go by 

terrestrial radio, or whether it goes by satellite—

Senator HATCH. Or some new technology. 

Mr. KARMAZIN.—or some new technology, we think that’s the relevant issue, not whether or not somebody happens to use very expensive satellites as compared to using some more efficient technology to get into the car. 

Chairman KOHL. Yes. But what we are establishing here, at least 

in terms of opinion at this point, is that there is very little likelihood that there will be a satellite competitor to this merged company. 

You’re saying there can be others and we can talk, but Senator 

Hatch’s question needs to be answered, at least to my satisfaction, 

and in a fairly precise way, which you are in a position to do, and 

you are doing it, which I respect. You are saying that there is not 

a likelihood that there will be a satellite competitor to your merger. 

Mr. KARMAZIN. No. 

Chairman KOHL. If you thought, in a very easy manner, all kinds 

of different technologies are available, will be available to make 

your service not unique at all because it can be duplicated and received in so many different ways, I don’t think you’d be here today 

asking for this exclusivity, Mr. Karmazin. 

Mr. KARMAZIN. Senator, I gave you a very candid, very honest 

answer, in my opinion. But, you know, this is America. If somebody 

wants to do it and they have the resources to do it, nothing would 

stop them from doing it. 

Chairman KOHL. From doing what? 

Mr. KARMAZIN. Launching another business competitive to satellite radio. 

30

Chairman KOHL. But you would not expect it to be a satellite 

business? 

Mr. KARMAZIN. I don’t expect it. But you know what? I didn’t expect that there was going to be audio channels coming from cell 

phones. I wasn’t a visionary that invented the I–Pod. And by the 

way, I didn’t invent satellite radio, you know. 

So it was that there are all kinds of very smart people with all 

kinds of access to capital, and there is no stopping their ingenuity 

as to what business they want to get into. But do I think that’s 

likely? No, I don’t believe that’s likely. That’s as candid as I can 

be. 

Chairman KOHL. I appreciate that. I do appreciate that. 

Senator HATCH. Well, 5 years ago we didn’t know what Wi–Fi 

was, you know. Or maybe it’s longer than that, but I think about 

the last 5 years. 

So you don’t know what kind of technology is going to come. But 

on the other hand, you know, I can see the concerns of the others 

there as well. I personally don’t believe that there will be a lack 

of competition if you’re successful. 

Mr. KARMAZIN. Yes. I didn’t believe there was going to be an HD 

radio. I mean, I didn’t believe, you know, that there was going to 

be—

Senator HATCH. I’m very interested that you were honest enough 

to say you didn’t think anybody else would do satellite. 

Mr. KARMAZIN. Well, you know, I made a lot of money in it. 

Senator HATCH. I don’t see how you know that. Because I know 

one thing, if you’re really successful, there’s going to be people with 

billions of dollars who are going to come in and compete with you, 

it’s just that simple. 

Mr. KARMAZIN. I just think that there’s a lot of other technology 

and there are a lot of ways of getting the signal into the places 

where the consumer wants the signal, that you might be able to 

do it more efficiently than the high-cost way that we chose to do 

it 10 years ago, which was to start getting into satellite radio. 

I mentioned earlier that the losses that the companies—again, 

not crying poverty by any means—have sustained are, combined, 

about $7 billion before we’ve made a dime. So the likelihood of 

somebody going through those kinds of losses is, there’s a more efficient way of doing it. 

You know, I would not be the person who would launch the three 

satellites, have a ground station on the spare, put an infrastructure 

in, when I have all kinds of other technologies that are enabling 

me to get into the car, which everyone has said is the place where 

you want to be. 

Senator HATCH. Well, to do exactly what you’re doing now. 

Mr. KARMAZIN. Right. 

Senator HATCH. Except that it’s not satellite. 

Mr. KARMAZIN. Correct. 

Senator HATCH. Yes. I see. 

Chairman KOHL. Mr. Balto, we often hear the argument that the 

merged company could not raise its price because it competes with 

free over-the-air, yet we have a similar example that appears to be 

contrary to this argument that cable television competes with free 

over-the-air all over America in every market. 

31

But every year, consumers in every market all over America see 

substantial price increases averaging sometimes triple the rate of 

inflation on their cable bill. Doesn’t this teach us something that 

can be prophesied with respect to this merger versus over-the-air 

radio? 

Mr. BALTO. I think that is absolutely correct. I am sure that the 

proponents of this merger will note that free TV is much smaller 

than free radio is, but I don’t think, if you carefully look at what 

satellite radio does, you will conclude that it does compete directly 

and competes aggressively against terrestrial radio. So, I think you 

would have the same problem of likely price increases. 

Let me touch on the technological innovation point that was just 

made. Look, the courts, interpreting the Clayton Act, have made it 

clear that we don’t sacrifice the interests of consumers on a bet 

that the market will change. 

To approve an otherwise anti-competitive merger, the merging 

parties must demonstrate that entry is timely, likely, and sufficient 

to prevent anti-competitive harm and it’s a 2-year period used. I 

don’t think you can show that those alternatives will come to the 

market within two years. 

But in any case, if that’s the key to their argument, if this deal 

makes sense now, it will make sense when those alternatives can 

constrains anti-competitor conduct. 

Chairman KOHL. Ms. Sohn? 

Ms. SOHN. I just have to disagree with Mr. Balto on the TV 

point, because a lot of the reason that people get cable TV in the 

first place—and frankly, the raison d’etre for cable starting—was 

for people to get their local over-the-air stations. OK. That’s different than here. OK. 

People don’t get XM radio because they want to get access to 

their local stations. They get it because they’re tired of the play 

listing and the over-advertising on local stations. So, it really isn’t 

comparable. 

The other point is, I do think Mr. Balto understates a little bit 

the vastness of technological change. I don’t know if I ever agree 

with Senator Hatch on much of anything, but I think on this one 

I probably lean more toward his argument. 

In fact, I think it was last week a satellite radio—it doesn’t do 

it exactly like XM and Sirius, but a service called Slacker that provides personalized channels, radio channels, using existing extra 

satellite capacity was just launched. They say that, by the end of 

the year, they’re going to be able to have receivers in cars. 

Now, obviously this is something that the antitrust authorities 

are going to have to look at to see if, indeed, this would tamp down 

prices. But I do think that Mr. Balto understates a little bit the rapidity of technological change and what is actually coming on over 

the horizon. 

Chairman KOHL. I’ll ask one more question, then I’m going to 

open it up for any comments you have before we close. 

Mr. Karmazin, 2 days ago the Kansas City Star published a column entitled, ‘‘Sirius-XM Merger A Bad Idea’’. In the article it stated that if the Sirius-XM merger was allowed ‘‘Clear Channel’’ 

would start buying up every radio station in America that it 

doesn’t already own, Apple will be able to buy any company that 

32

begins to challenge its dominance in the market for portable music 

players, Comcast will begin merger talks with Time-Warner, and 

there will be nothing standing in the way of a marriage of NBC 

and CBS.’’

Mr. Karmazin, doesn’t the author of this article have a point? If 

we allow one company to control all of satellite radio, why not 

allow one company to dominate over-the-air radio, another company to dominate cable television, and yet another company to own 

all the television networks, et cetera? 

Won’t allowing your merger establish some kind of a precedent 

that could easily lead to consolidation in many other areas of communication? 

Mr. KARMAZIN. Senator, I have a great deal of respect for you 

and this Committee and the Justice Department and the FCC, and 

I don’t think that because you allow one means you’re under any 

obligation to do anything else. I think each of these markets stand 

on their own. I believe that there is not that risk. 

I can also tell you that publications like the L.A. Times and USA 

Today and the Wall Street Journal and the Chicago Tribune have 

all taken the opposite point of view. So I don’t want to get into 

dueling editorials, but I can assure you that there have been an 

awful lot of very respected publications who believe, as I do, that 

this merger is in the public interest. 

Chairman KOHL. OK. Other comments? Ms. Quass? 

Ms. QUASS. I would just say that none of us can sit here and predict the future. And while we all hope that the technology continues to advance both from over-the-air free radio and many other 

sources, whether it is I–Pod or whatever, but I think the concern 

that I wanted to just clarify before we leave today is, I want to 

make it clear that over-the-air local radio does not compete on a 

national platform with satellite radio. There are two competitors, 

XM and Sirius. 

They are the only ones who have the bundle and offer the array 

of services on the platform that they have, that is mobile, that is 

nationwide. We need to be clear that if we’re going to compete and 

we want to talk about competing on a level playing field, that we 

get on a level playing field. The national market is not it. We do 

not compete. The only competition is between those two. Thank 

you. 

Chairman KOHL. Thank you. 

Ms. Sohn? 

Ms. SOHN. Yes. I want to agree with Mr. Karmazin. I’m not concerned about the slippery slope argument either, that if you grant 

this merger you’ll have to grant every other one the digital space. 

I assume antitrust authorities judge each merger on its merits, so 

I don’t buy that argument. 

The second thing is, it was so interesting to hear Mr. Balto talk 

about how the broadcasters are talking consistent with the public 

interest. You know, you’re the antitrust expert, I’m the communications expert. I’ve been doing this for 20 years. Let me tell you, they 

rarely do anything that’s consistent with the public interest. OK. 

They’re here because they haven’t liked satellite radio from the getgo. Their idea of a level playing field is one that puts them at the 

top and everybody at the bottom. 

33

I mean, you know, the broadcast industry has a history of going 

to government to protect it, must carry exemption from paying the 

performance fees, free spectrum. We can go on and on and on. So, 

be wary when you listen to the broadcasters about why they are 

opposing this merger. Just remember their history in trying to 

limit satellite radio from the get-go. 

Chairman KOHL. Mr. Balto? 

Mr. BALTO. I think the merger should be stopped. We only have 

access to public information, a point Gigi and I both made. But 

based on that public information, there are serious concerns raised. 

I think it’s crucial to understand there is a reason why 14 million 

people pay $13 a month for this service. It’s because satellite radio 

provides a valueable service, a service that is different than other 

alternatives. The courts consistently look to those characteristics to 

determine what a relevant market is. In this case, the relevant 

market is satellite radio. 

Technological change. Antitrust enforcers and courts hear those 

arguments all the time. If they had been accepted, the Antitrust 

Division’s case against Microsoft might have fallen to the wayside. 

But the key thing here is, if that’s true, this merger makes sense 

for these merging parties today, it will make sense the day consumers can receive a form of a cluster of services of radio in my 

car by Internet. It will still make sense then, then do the deal then. 

Otherwise, if you approve the merger as proposed, you’re writing 

a check on your children and your grandchildren’s behalf by agreeing to a monopoly that will last forever. 

Chairman KOHL. Thank you. 

Mr. Karmazin, do you want to make one last comment? 

Mr. KARMAZIN. Sure. Thank you very much. I appreciate the opportunity to be here. I look forward to working with this committee, as well as the regulators, in demonstrating that this merger 

is not anti-competitive and in the consumers’ best interests, and I 

look forward to everybody giving the broadcasters the level playing 

field they want so that they should pay for performance rights as 

well as spectrum, which is sort of what satellite radio is doing right 

now. 

Chairman KOHL. Thank you. 

Well, we thank you all for being here, both those in the audience, 

as well as those of you—and you’ve been really good—who have 

agreed to be here today and testify and make comments. 

As Senator Hatch said and as we all understand, this is a big 

issue. It’s something that is going to reverberate across our country 

no matter which way it goes, I think, particularly if we allow the 

merger, so let’s see what happens. 

Thank you, Mr. Karmazin. Thank you, guys. 

[Whereupon, at 4:12 p.m. the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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