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S. HRG. 110–1201 

XM-SIRIUS MERGER AND THE PUBLIC INTEREST 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

APRIL 17, 2007 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

DANIEL K. INOUYE, Hawaii, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TED STEVENS, Alaska, Vice Chairman 

JOHN MCCAIN, Arizona 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

JOHN THUNE, South Dakota 

MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel 

LILA HARPER HELMS, Democratic Deputy Staff Director and Policy Director 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

KENNETH R. NAHIGIAN, Republican Deputy Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on April 17, 2007 .............................................................................. 1 

Statement of Senator Dorgan ................................................................................. 2 

Statement of Senator Inouye .................................................................................. 1 

Statement of Senator Klobuchar ............................................................................ 45 

Statement of Senator Lautenberg .......................................................................... 3 

Statement of Senator McCaskill ............................................................................. 53 

Statement of Senator Stevens ................................................................................ 3 

Statement of Senator Thune ................................................................................... 51 

WITNESSES

Bank, David, Managing Director, Media and Broadcasting Equity Research 

Analyst, RBC Capital Markets ........................................................................... 37 

Prepared statement .......................................................................................... 38 

Karmazin, Melvin Alan ‘‘Mel’’, CEO, Sirius Satellite Radio ................................ 4 

Prepared statement .......................................................................................... 5 

Kimmelman, Gene, Vice President, Federal and International Affairs, Consumers Union; on behalf of Common Cause, Consumers Union, Consumer 

Federation of America, Free Press, and Media Access Project ........................ 20 

Prepared statement .......................................................................................... 22 

Sohn, Gigi B., President and Co-Founder, Public Knowledge ............................. 29 

Prepared statement .......................................................................................... 31 

Withers, Jr., W. Russell, President, Withers Broadcasting Companies; on 

behalf of the National Association of Broadcasters ........................................... 10 

Prepared statement .......................................................................................... 11 

(1) 

XM-SIRIUS MERGER AND THE PUBLIC 

INTEREST 

TUESDAY, APRIL 17, 2007 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:05 a.m. in room 

SR–253, Russell Senate Office Building. Hon. Daniel K. Inouye, 

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. DANIEL K. INOUYE, 

U.S. SENATOR FROM HAWAII 

The CHAIRMAN. This morning the Committee considers issues related to the proposed merger of the two satellite radio operators of 

the United States, XM and Sirius. While satellite radio is relatively 

new, it has grown rapidly. Today XM and Sirius provide audio entertainment services to more than 13 million Americans. These 

subscribers listen to satellite radio primarily while driving in their 

cars but some also listen in their offices, homes and on portable devices. Despite such successes, Sirius and XM now argue they 

should be permitted to merge into a single satellite radio provider, 

a result that was explicitly prohibited when the FCC adopted service rules in 1997. 

In the eyes of satellite radio operators, such a restriction is out 

of date given the availability of programming via alternatives like 

dish over-the-air radio, MP3 players and other means of receiving 

audio entertainment. But to merger opponents, that argument 

rings hollow; in their view, satellite radio offers a unique collection 

of nationwide programming that as a whole cannot be effectively 

replicated. As such, these alternatives complement rather than 

compete with satellite radio. Thus to merger opponents, a satellite 

radio monopoly puts at risk the benefits of low priced and high 

quality service that only accrue from competing service providers. 

This morning’s hearing presents us with an opportunity to test 

these claims. While we welcome this discussion, I believe that the 

merger proponents in this case have a steep hill to climb. Indeed, 

given the public interest in promoting competition and maximizing 

a diversity of media outlets, we should be skeptical of claims that 

new technologies necessarily change the equation and provide competition sufficient to restrain monopoly power. 

With that, I look forward to hearing from today’s witnesses. 

2 

STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, thank you very much. Thank 

you for allowing me to briefly make a statement now. I hope I can 

get back in time to ask some questions today. This is, I think, a 

particularly good panel. This is a very important topic. And Mr. 

Chairman, I believe it was last week I pointed out that there, in 

my judgment, has been precious little antitrust enforcement in this 

town for a long long time, not just this Administration but the previous Administration and beyond. Satellite radio is an appropriate 

hearing subject. It is a wonderful new service for consumers. I happen to be a subscriber so I listen to satellite radio, enjoy it, appreciate the offering it provides to the American consumers. 

You mentioned in your opening statement that the licenses 

granted to two companies, Sirius and XM, nearly a decade ago, included a caveat that they not merge. They are now coming to us 

saying that a few short years later they wish to merge. I do not 

support the merger. I believe that merger by definition means less 

competition and where you had two competitors, you will have one 

company. I think it means less competition, more concentration. 

Mr. Chairman, you and the ranking members and others on this 

Committee know that I’ve spent a lot of time being very concerned 

about the concentration in broadcasting, television, radio, the galloping concentration in both areas, concentration with respect to 

newspapers, and that which we see, hear and read in this country 

is unfortunately these days controlled by a very few people. I’m 

very concerned about concentration. This is but one more step in 

those areas. 

If I am back in time I will ask some questions. I had a chance 

to meet with Mr. Karmazin yesterday. He is a very able executive 

in that industry. I very much appreciated the opportunity to visit 

with him. But I do think there are a couple of important questions, 

one is the impact on the consumer of a merger in which competition is eliminated. And second, I will put up a chart that shows 

with respect to both XM and Sirius the content that they are providing. And because they are providing that content, I suppose, is 

one of the reasons that I and other subscribers are paying for that 

service every month. But one of the questions and one of the criticisms has been, what are they paying for all of this content? 

I know that from published reports Oprah is getting $55 million, 

but as you know from all of the rest of these, it’s I believe Dale 

Earnhardt, Willie Nelson, Richard Simmons, Quincy Jones, 

Eminem, Snoop Dogg, Ellen Degeneres, Barbara Walters, and the 

list goes on and on. I think it would be important to understand, 

what are the contracts with respect to all of this content. Has that 

provided some tightening and pinching with respect to the revenues of two companies that then wish to become one? 

We have I think a good panel and I appreciate that this hearing 

is timely and I think it’s also very important. This is an important 

public policy question. I come down on the side of opposing the 

merger. Mr. Chairman, thank you. 

The CHAIRMAN. Thank you very much, 

Senator DORGAN. The Vice Chairman, Senator Stevens. 

3 

STATEMENT OF HON. TED STEVENS, 

U.S. SENATOR FROM ALASKA 

Senator STEVENS. Thank you, Mr. Chairman. I apologize for 

being slightly late. I made the mistake of agreeing to make two appearances before this hearing. I’ll cut it down to one next time. But 

I do think that this proposed merger between XM and Sirius presents an opportunity for us to learn more about this concept of 

audio entertainment. And we spent a great deal of time establishing a digital transition to assist public safety, and to create new 

broadband opportunities and there is a transition now obviously in 

radio. 

I’m sure you’ve had, the same as I have had, some complaints 

from local broadcasters who have news, sports, weather and additional programming that they believe could be subject to harmful 

competition, that they can’t survive with regard to this type of paid 

national satellite radio services. I appreciate the proponents of the 

merger visiting with me and my staff before this hearing. I still 

don’t know the answer to this question. I look forward to trying to 

understand it better in this hearing, and I do know that we all 

want to know what’s going to happen to the consumers in our own 

states, so I look forward to any comments that might be made 

about this and the impact of this on rural America. Thank you. 

The CHAIRMAN. Thank you very much. 

This morning we have five witnesses. I’m sorry. 

Senator Lautenberg? 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thanks, Mr. Chairman. The hearing is an 

important one and we are going to determine a lot about listening 

habits and fairness and equity with our consumers, and I listen to 

satellite radio and enjoy it. But there is no free lunch, obviously. 

It’s a business. And the rise of satellite radio has offered a new and 

very powerful way to increase consumer choice for audio entertainment. But we have got to make sure that as satellite radio’s audience increases, that consumers are not forced to face fewer choices 

and higher prices. We always talk in our country about the value 

of competition and what it does for product development and pricing. Now, if XM and Sirius merge, the combined company would 

provide service for nearly 14 million customers across the country. 

But we have got to make sure that service after the proposed 

merger would be a consumer benefit, not just to the satellite radio 

companies themselves. Consumers must be able to have the service 

from both networks without having to invest in costly new equipment, without paying monthly rates far higher than the current established rate, $12.95. And it’s interesting to me how the two companies of interest were able to strike a price that was so perfectly, 

as we say, in tune, to use the vernacular. 

We have also got to consider the merger’s potential effect on free 

radio and local coverage. And as a former businessman, I understand the desire of the two satellite radio companies to grow their 

businesses. And they offer a product of great interest. But we’ve 

got to make sure that the principal interest is that of the public, 

and that consumers have more options and fairer pricing for the 

4 

products. So, Mr. Chairman, thanks very much for doing this. It’s 

a very important subject and I look forward to the testimony of our 

distinguished witnesses. 

The CHAIRMAN. I thank you very much, Senator. And as I was 

saying, this morning we have a panel of five great experts. Mr. Mel 

Karmazin, Chief Executive Officer of Sirius Satellite Radio; Mr. W. 

Russell Withers, Jr., President, Withers Broadcasting Companies; 

Mr. Gene Kimmelman, Vice President for Federal and International Affairs, Consumers Union; Ms. Gigi Sohn, President and 

Co-Founder, Public Knowledge; Mr. David Bank, Managing Director and Equity Research Analyst for RBC Capital Markets. And 

may I first recognize Mr. Karmazin. 

STATEMENT OF MELVIN ALAN ‘‘MEL’’ KARMAZIN, CEO, 

SIRIUS SATELLITE RADIO 

Mr. KARMAZIN. Good morning, Chairman Inouye and Vice Chairman Stevens, and members of the Committee. I appreciate this opportunity to talk to you today about the Sirius-XM merger and the 

benefits it will bring to consumers and the competition we face in 

the audio entertainment market. Prior to our announcement on 

February 19th, our board met many times with our advisors and 

we were told that in order for this merger to be approved, we 

would have to demonstrate two things, and you know Senator Dorgan and Senator Lautenberg said it. We need to demonstrate that 

this is good for consumers, and number two, that we have to demonstrate that it’s not anticompetitive. 

So I’m here to talk to you today about why these benefits of our 

merger are good for consumers and not anticompetitive. This Committee has a distinguished history of examining how changes in the 

media landscape affect consumers. So let me begin by summarizing 

the consumer benefits of our merger that we recently enumerated 

in our FCC filing. 

We are confident that a combination of Sirius and XM is a big 

win for consumers. And here is why. Today Sirius and XM each 

provide consumers with one package for our service at $12.95. Consumers who want programming from both services, such as the 

NFL from Sirius or Major League Baseball from XM, must buy two 

radios, and also must have two subscriptions totaling $25.90 a 

month. 

After the merger, the company will offer a programming package 

that offers the best of both services at a modest premium just over 

$12.95, which is what the consumers today pay for one service. In 

addition, the new company will offer new lower priced packages 

with fewer channels combining music, entertainment, sports, information and more, at a price below $12.95. 

So in the area of pricing, I just described that the new company will offer a new package costing less than $12.95 and a premium 

package that will cost modestly above $12.95, but below $25.90. No 

subscriber, no subscriber will pay more for the service that they 

now have. Today, consumers of both companies can block certain 

adult programming. The new company will provide a credit so that 

nobody will subsidize or pay for adult content that they don’t want. 

Also to Senator Lautenberg’s point, no consumer will have to buy 

a new radio. The radios that they currently have will not be obsoVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\78881.TXT JACKIE
5 

lete, so lower prices, more choices for consumers demonstrate that 

the merger is in the public interest. All of the commitments are 

more than just words. We are prepared to at the appropriate time 

discuss with each of the regulators a guarantee as to how these 

points that I’ve mentioned can be conditions of our merger. 

Now I’d like to turn briefly to the subject of competition. That’s 

the second issue that the regulators are going to have to deal with. 

The audio entertainment market is a fiercely competitive, rapidly 

expanding market, and we are a very small piece of it. Satellite 

radio, XM and Sirius only have 3.4 percent of the audio market. 

Terrestrial radio remains the 800 pound gorilla in our market with 

nearly 14,000 radio stations, 230 million listeners—that 230 million listeners compares to our 14 million subscribers combined— 

and receivers that are in virtually every car, clock radio and home 

stereo in America. 

Given our small share in a market brimming with competition 

and innovation, much of it free and universally available, our 

merged company will have to provide great service and pricing to 

continue to grow our business. To appreciate the intense competition in audio entertainment today, consider the extraordinary 

changes that have taken place in the 10 years since our licenses 

were granted. In 1997, there was no HD radio. Today there are 

over 1,100 radio stations providing coverage and Wal-Mart is selling HD radios. There was no Internet radio, and Internet radio is 

fast becoming aggressive in an area of WiFi. No iPods. There were 

no iPods in 1997 or MP3 players; nor were there any entertainment capable mobile phones. 

Today all of these technologies not only compete with satellite 

radio, they also have backing from very resourceful companies with 

substantial positions. The rapid change in innovation, a very strong 

ubiquitous and free competition, and the small market share that 

Sirius and XM have together argues forcefully that our merger will 

not constrain competition. To the contrary, competition will require 

Sirius and XM to maintain both quality and affordability in order 

to maintain our growth. 

In closing, we believe that a Sirius and XM merger will be good 

for consumers, offering more choices and better pricing. At the 

same time we believe that the audio entertainment market is robust, competitive, and teeming with innovation and will remain so 

after our merger. I look forward to answering your questions. 

Thank you very much. 

[The prepared statement of Mr. Karmazin follows:] 

PREPARED STATEMENT OF MELVIN ALAN ‘‘MEL’’ KARMAZIN, CEO, 

SIRIUS SATELLITE RADIO

Mr. Chairman, 

Good morning. Thank you, Chairman Inouye, Vice Chairman Stevens, and members of the Senate Committee on Commerce, Science, and Transportation. I am 

grateful for the opportunity to talk with you today about how the merger of Sirius 

Satellite Radio and XM Satellite Radio will provide extensive consumer benefits and 

continue to promote competition in audio entertainment. 

I am Mel Karmazin, the Chief Executive Officer of Sirius. Before I came to Sirius 

in 2004, I was president of Viacom and, before that, president of CBS. I have spent 

almost 40 years in radio, and just about my entire working life in the broadcast industry. 

6 

With me here today is Gary Parsons, the Chairman of XM. Gary is a veteran of 

the communications business and a leader in the world of satellite radio. Gary and 

I are both looking forward to working together to create an exciting new company. 

Gary’s leadership and talent are crucial to the future of radio. Gary, together with 

XM’s CEO Hugh Panero, built XM into the success it is today. I should point out 

that XM has the largest digital radio facility of its kind in the country, and is 

headquartered right here in Washington, D.C., where the combined company will 

continue to have a significant presence. 

I would like to talk today about some of the important benefits consumers will 

see as a result of the proposed merger. I also plan to discuss the extensive competition that satellite radio faces from a range of players in the audio entertainment 

market. As I will explain, this intense competition will remain after the merger is 

consummated. 

I. A Sirius and XM Merger Will Generate Concrete and Significant Benefits 

for Consumers 

The Combined Company Will Offer Consumers More Choice at Lower Prices: 

Today, Sirius and XM each provide consumers one service offering at one price— 

$12.95 per month. Consumers have only a limited ability to tailor their service, and 

those seeking programming from both Sirius and XM must subscribe to both services for a combined payment of $25.90 per month. The merger of Sirius and XM will 

enable the combined company to enhance these offerings through: 

• Better pricing. The merger will allow us to lower prices. Consumers who want 

fewer channels than currently offered will be able to select one or more packages of channels for less than $12.95 per month. These packages will include 

an attractive mix of music, news, informational, sports, children’s, and religious 

programming. 

• More choices. Sirius and XM customers will be able to access certain popular, 

previously exclusive programming of the other provider for a modest premium 

over what they are paying now. 

• Still more choices. When interoperable radios are commercially available, consumers who want to have access to the complete offerings of both companies will 

be able to do so on a single device for significantly less than the current price 

of $25.90. 

• Empowering consumers. While customers of both companies currently have the 

option of blocking adult programming, the combined company will provide customers a credit if they choose to do so. 

Despite the speculation to the contrary, the combined company will not raise 

prices. After the merger, consumers who want to continue to receive substantially 

the same channel lineup of either Sirius or XM may continue to do so at the same 

price—$12.95 per month. 

The Combined Company Will Be Able To Provide Consumers More Diverse Programming: Sirius and XM currently provide a wide range of commercial-free music 

channels, exclusive and non-exclusive sports coverage, news, talk, traffic and weather, and entertainment programming. However, there is significant overlap and redundancy in the channel line-ups of Sirius and XM. For example, 12 identical channels are available on both Sirius and XM. A further 75 channels overlap by genre— 

providing substantially similar programming. 

In the long-term, the combined company will be able to consolidate certain redundant programming. The result ultimately will free capacity for more diverse offerings that are not currently available on either company’s system, including expanded non-English language programming, children’s programming, and additional 

programming aimed at minority and other underserved populations. Notably, this 

additional capacity also may allow the combined company to provide additional programming related to public safety and homeland security. 

The Merger Will Help Accelerate Deployment of Advanced Technology: The combined company will be able to offer consumers access to advanced technology sooner 

than would otherwise occur. In particular, the marriage of the companies’ two engineering organizations will ensure better results from each dollar invested in research and development. As a consequence, the combined company will be able to 

improve on products such as real-time traffic and rear-seat video. In addition, the 

combined company will be able to introduce new services, such as enhanced traffic, 

weather, and infotainment offerings; more rapidly and with greater capabilities. 

The Merged Company Will Be Capable of Commercializing Interoperable Receivers, 

Providing Greater Customer Choice and Convenience, While Also Protecting All Receivers on the Market Today: This merger will neither interrupt nor affect cusVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\78881.TXT JACKIE
7 

tomers’ use of their existing radios. After the merger, current subscribers may 

choose to continue to receive substantially similar service at the same price over 

their existing satellite radio. While no radio will become obsolete as a result of the 

transaction, we fully expect the merger to stimulate the development of new interoperable, highly portable, low-cost, and user-friendly devices. 

The Merger Will Create Operational Efficiencies and Safeguard the Future of Satellite Radio: Satellite radio is a highly capital-intensive and expensive business. Sir- ius and XM each have invested over $1 billion in their initial in-orbit satellites and 

over $5 billion each in their businesses overall, and both continue to report significant operating losses. For the year ended December 31, 2006, Sirius reported a net 

loss of $1.1 billion while XM reported a net loss of $719 million. Both companies 

continue to report enormous operating losses. The proposed merger will allow Sirius 

and XM to achieve large-scale operational efficiencies that will help ensure that satellite radio can remain a strong, effective, and innovative audio entertainment provider. Importantly, significant portions of the savings achieved through the merger 

will be shared with customers immediately and in the long-term through lower 

prices and improved service offerings. 

* * * * * * * 

Each of these important benefits is directly tied to the proposed merger and cannot be realized without it. I also would like to make clear that these commitments 

are more than just words offered to appease regulators. We view each of these benefits as a ‘‘win-win’’ that will make good business sense for Sirius-XM. At the same 

time that we will be able to save our customers money and offer them more attractive services, we will be strengthening our merged business. As I will explain in 

more detail below, satellite radio competes intensely with free terrestrial radio and 

a host of other audio entertainment providers. The key to getting more subscribers 

will not be to widen the price gap between free and what satellite radio charges. 

Instead, it will be to offer consumers a better value. We are prepared at the appropriate time to discuss each of the issues with regulators and to guarantee these benefits as a condition of our merger approval. 

II. A Sirius and XM Merger Will Enhance Not Harm Competition 

A. Satellite Radio Is a Small Part of a Highly Competitive and Ever-Expanding 

Market for Audio Entertainment 

The market for audio entertainment in the United States is robustly competitive 

and rapidly evolving. Sirius and XM compete directly and intensely with a host of 

other audio providers for consumer attention. As a result, although satellite radio 

has proven to be an appealing and popular new product, its market penetration remains quite limited. A recent Arbitron study found that Sirius and XM account for 

just 3.4 percent of all radio listening, spread out among the approximately 300 channels that the two companies currently offer. To provide the Committee with a sense 

of the fiercely competitive state of today’s audio entertainment market, I would like 

to take a few moments to provide some details concerning some of our more salient 

competitors. 

Terrestrial Radio: By any measure, ‘‘over-the-air’’ AM/FM radio is the most dominant form of audio entertainment. This is not surprising, given the ubiquity of the 

service: AM/FM radio is offered free of charge to all consumers and comes as a 

standard feature in virtually every vehicle, home stereo, and clock radio sold to U.S. 

consumers. Nearly 14,000 radio stations exist nationwide. Approximately 230 million Americans choose to listen to terrestrial radio each week. And much of the content available over terrestrial radio mirrors that provided by satellite radio. 

HD Radio: The broadcast industry has made significant strides in rolling out digital services, and HD Radio technology is now spreading rapidly. Just last month, 

HD Radio received a substantial boost from the FCC. The agency issued an implementing decision that not only enables radio stations to broadcast higher quality 

digital entertainment, but also permits them to offer multiple streams of programming and data services over their existing channels. Significantly, the Commission’s 

decision also allows radio broadcasters to provide digital subscription services on an 

experimental basis. This flexibility surely will intensify the competition between 

AM/FM radio and satellite radio, not only for listeners but also for subscription dollars. 

Through the HD Digital Radio Alliance—a consortium of broadcasters that includes almost all major players, including Clear Channel Communications, CBS, 

and ABC Radio—the terrestrial radio industry has committed hundreds of millions 

of dollars to promoting this technology. That investment already has had proven effects. Approximately 1,200 HD Radio stations are already on the air, and hundreds 

more have licensed HD Radio technology. 

8 

In addition, the availability of HD Radio receivers is steadily and rapidly increasing. A year ago, there were only four or five HD Radio models available and the 

lowest price was $599. Now there are 30 manufacturers of radios and price points 

under $200. HD Radio is now available on all new BMW vehicles and in RadioShack 

stores. Wal-Mart, the Nation’s largest retailer, recently announced plans to sell HD 

Radio receivers. Statements and materials from the HD Digital Radio Alliance clearly position HD Radio as a counterpoint to satellite radio. 

Internet Radio: Internet radio is another formidable and fast-growing player in 

the audio entertainment market. A 2006 Arbitron study found that weekly 

listenership to Internet radio had increased 50 percent in just 1 year, and now approaches one in five Americans among key demographic segments. In one survey, 

34.5 percent of Americans aged 15–24 mentioned online streaming as a primary 

source of music consumption in 2006 (up from 9.7 percent in 2004). Internet radio 

broadcasts have no geographic limitations and can provide listeners with radio programming from around the country and the world. Several Internet radio services, 

including Yahoo! LAUNCHcast and Pandora, allow users to create their own radio 

stations based on their listening preferences. 

Internet radio, like HD Radio, is becoming a source for mobile audio entertainment as well. Slacker, a service unveiled just weeks ago, allows users not only to 

customize their music channels, but also to listen to them on portable devices, including in their cars; the service includes a free, advertising-based version as well 

as a subscription option. Various Internet radio offerings are already available on 

mobile phones, and Internet radio is expected to become widely available on portable devices, including car radios, by 2008. 

iPods and Other MP3 Players: MP3 players, such as iPods, also compete with satellite radio for listeners. More than 116 million MP3 players have been sold. Like 

other audio competitors, MP3 players are highly mobile. There are now a variety 

of accessories available to play MP3 players in cars, through the vehicle’s FM radio 

or tape deck. In addition, Apple recently announced that it has teamed with Ford, 

General Motors, and Mazda to provide iPod integration across the majority of their 

brands and models. With the addition of these models, more than 70 percent of 

2007-model U.S. automobiles are expected to offer iPod integration. Many MP3 players also can be connected to online music subscription services, such as Real Network’s Rhapsody, Napster 2.0 and Yahoo! Unlimited. 

Mobile Phones: Mobile phones represent yet another significant and expanding 

means of enjoying audio entertainment. Approximately 75 percent of all Americans 

currently own a mobile phone, and the possibility of content delivery has not been 

lost on wireless carriers. Several major carriers are now offering audio entertainment options, and subscribers are taking advantage of them in dramatically growing 

numbers. For example, Sprint currently offers over 50 channels of radio and streaming video that subscribers can access via their devices for a monthly fee as well as 

music download capabilities for a one-time fee. AT&T and Verizon Wireless provide 

similar services. Approximately 23.5 million wireless subscribers currently own 

phones with integrated music players. This demonstrated consumer interest in 

music-capable handsets likely will skyrocket in a matter of months when AT&T and 

Apple make the Apple iPhone available for sale. 

In addition, a number of other companies and consortiums have announced plans 

to deliver broadcast audio and video content through mobile phones and other wireless devices. Three companies—MediaFLO USA, HiWire, and Modeo—have acquired 

nationwide or near-nationwide spectrum to deliver audio and video content through 

existing wireless service providers and are in the process of implementing, testing, 

and launching service. A joint venture of Sprint and several cable companies is implementing a similar mobile entertainment platform. 

The above list is by no means exhaustive. To be a competitor, businesses and 

technologies need not be exact copies of one another. There are numerous other 

audio entertainment options available today as well as a constantly growing array 

of choices in the works. Moreover, it is clear that these providers view themselves 

as being in direct competition with each other. In public filings and statements, various members of the radio broadcasting industry have emphatically stated that they 

compete directly with satellite radio and other forms of audio entertainment—a view 

that is underscored by the fervent opposition they expressed toward the pending 

transaction before the ink on the merger agreement was even dry. By the same 

token, Sirius and XM have listed a wide range of audio entertainment competitors 

in their SEC filings. 

Just by way of example, NAB recently explained in the context of the FCC’s ongoing media ownership proceeding that ‘‘local radio stations compete for listeners with 

other forms of audio delivery offering an almost unlimited array of content. iPods 

and other MP3 players, music services, podcasting and the Internet streaming of 

9 

U.S. and foreign radio stations literally provide content from around the world to 

listeners in each local radio market in America.’’ Such statements remove any doubt 

concerning the diversity and multiplicity of options available in the audio entertainment market today. 

B. Given the Widespread Competition in the Audio Entertainment Market, the 

Merged Company Will Not Have the Ability to Harm Existing Competitors or 

New Market Entrants 

In an attempt to cast doubt on the merits of a Sirius-XM merger, some broadcasters now appear to be reversing course and questioning whether satellite radio 

fully competes with AM/FM radio and other audio services. Pointing to differences 

between various audio services, some even try to make the case that satellite radio 

is a market onto itself and, therefore, that the proposed merger will create a ‘‘monopoly’’ that will have the ability and incentives to harm competition and consumers. Of course, this artificially narrow characterization conflicts with the expansive audio market that broadcasters publicly have described elsewhere. 

But broadcasters cannot have it both ways. As the industry’s own prior statements make clear, the fact is that the market for audio entertainment is highly 

competitive now, and it will continue to be so after a Sirius-XM merger. 

Given the realities of today’s audio entertainment landscape, there is no legitimate basis for concern that this merger will enable the new company to charge ‘‘monopoly’’ prices or otherwise harm consumers or competitors. In reality, a combined 

satellite radio provider will be unable to exercise market power, let alone dominate 

the market. 

As explained above, although satellite radio has proven to be an appealing and 

popular new product, it accounts for only a small slice of the audio entertainment 

market. The combined company will serve only a minor fraction of the consumers 

who purchase or use audio entertainment services. Given that Sirius and XM together account for only about 3 percent of all radio listening, we will have every 

incentive to offer prices that will attract more subscribers, not drive them away. 

In addition, customers can and do easily substitute other audio entertainment options for satellite radio, and this will continue to be the case after the merger. Indeed, many of the existing options are potentially more appealing and less costly 

to consumers. For example, AM/FM radio, as well as HD Radio, currently offers 

much of the same content as satellite radio for free to all consumers. And the ubiquitous nature of AM/FM radios provides consumers with broad exposure to the programming of broadcasters. The merged company’s prices will continue to be constrained by these inescapable facts. Similarly, online music subscription services 

and podcasting enable consumers to replicate most of the content and the user experience available through satellite radio. Moreover, Internet radio is capable of offering more variety and choice than any other option, and allows listeners to have substantial control over content selection and information about artists. 

As a further illustration of the substitutable nature of various audio services, several audio providers actively have been expanding their capabilities so that their 

services more closely resemble satellite radio. For example, terrestrial radio has increased its format options while reducing commercials. HD Radio provides higherquality sound that is comparable to satellite radio, as well as expanded genres and 

music formats. New automobiles increasingly come with input jacks that can be 

used to connect MP3 players or factory-installed iPod integration kits, similar to satellite radio. Likewise, vehicles soon will support Internet radio and music over mobile phones. 

Given the existing and emerging capabilities of a range of audio entertainment 

services, it is not surprising that consumers routinely avail themselves of multiple 

options. In addition, many users of newer services, such as MP3 players and satellite radio, continue to rely on terrestrial radio. These factors will continue to exist, 

and to impact the behavior of satellite radio and other market participants after the 

merger. 

Finally, aside from this existing, vibrant competition, entry by new competitors 

and expansion of current services will remain viable notwithstanding the pending 

merger. New wireless networks are already under construction, which will support 

mobile audio services via devices such as mobile phones and Internet radio over 

WiFi and WiMAX. In addition, there appears to be little limit to the growth of Internet radio and podcasting. Other types of spectrum also are available that are capable of supporting services comparable to satellite radio. For example, audio entertainment services similar to satellite can be deployed using the frequencies allocated 

to the Wireless Communications Service. Indeed, this spectrum originally was identified for satellite radio, but was reallocated pursuant to congressional mandate. The 

10 

FCC could authorize audio entertainment services using spectrum alternatives without regard to a satellite radio merger. 

III. Conclusion 

Chairman Inouye, Vice Chairman Stevens, and members of the Committee, the 

audio entertainment market today is vibrant, competitive, and innovative, and every 

indication is that it will be even more so in the future. We believe that the combination of Sirius and XM will be good for consumers as it will intensify this competition, expand the choices for consumers, and reduce prices. We appreciate this opportunity to share our views with you, and I look forward to answering any questions 

you may have. 

Thank you. 

The CHAIRMAN. Thank you very much, Mr. Karmazin. May I now 

recognize Mr. Withers. 

STATEMENT OF W. RUSSELL WITHERS, JR., PRESIDENT, 

WITHERS BROADCASTING COMPANIES; ON BEHALF OF THE 

NATIONAL ASSOCIATION OF BROADCASTERS 

Mr. WITHERS. Good morning, Chairman Inouye, Vice Chairman 

Stevens, and members of the Committee. My name is Russ Withers. I’m the owner of Withers Broadcasting Companies, which operates 30 local radio stations and six television stations in seven 

states, including Missouri and West Virginia. I’m testifying today 

on behalf of the National Association of Broadcasters, where I serve 

as Vice Chairman of the Radio Board and a member of the Executive Committee. And I’m here to voice opposition to the proposed 

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

Satellite radio is a national radio service that provides hundreds 

of program channels to listeners across the country. There are only 

two such services and they compete against each other in the national marketplace. The undeniable fact is that XM and Sirius 

want government permission to take two competitive companies 

and turn them into a monopoly. 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 intramarket competition 

and to prohibit one satellite radio provider from ever acquiring control of the other, and there is no reason to change that position 

now. Currently, Sirius and XM occupy the entire 25 megahertz of 

spectrum allocated by the FCC for nationwide satellite radio service. With the new monopoly and a merged entity, they will continue 

to control this entire block of spectrum, preventing any new entrant from offering national satellite radio service and competing 

against their new monopoly. 

These companies have claimed that no one should worry about 

this monopoly because local radio competes against XM and Sirius. 

Let’s be very clear on this point. 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 that I 

operate in every day, markets like Cape Girardeau and Sikeston, 

Missouri. Local radio stations can only broadcast within their FCC 

defined coverage area. Local broadcaster signals are not nationwide, and they are not subscription-based. The national availability 

of satellite radio sets it apart from local broadcasters. 

11 

I operate in small and medium markets like Bridgeport and 

Clarksburg, West Virginia, where we are the voice of the community in times of emergency. In West Virginia this week it was the 

flood warnings; in Illinois and Missouri for the last 2 weeks it’s 

been the tornado alerts. We are the voice of unique connection to 

our listeners that no other medium provides. XM and Sirius, by 

contrast, offer a prepackaged bundle of national, mobile, digital 

audio channels. KGMO in Cape Girardeau delivers outstanding 

local news, sports, and entertainment. Consumers, however, would 

never consider my station’s local programming a comparable product to Sirius’ 133 channels or XM’s 170. 

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. In fact, a recent FCC report and analysis on 

satellite market conditions shows a very healthy and competitive 

national satellite radio market. Following U.S. Department of Justice merger guidelines, the FCC defines the market participants as 

two providers: XM and Sirius. The report also finds the geographic 

aspect of this market to be national, subscription, and offering nationwide licensed choices. These are inherently different characteristics and services than that of local radio broadcasters. 

I can understand why XM and Sirius would want a monopoly. 

But that does not mean that it is in the public interest. 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 

paid to him just last year. 

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

they can succeed without a merger. For these reasons and others, 

local broadcasters strongly oppose a government sanctioned monopoly for satellite radio. Thank you. 

[The prepared statement of Mr. Withers follows:] 

PREPARED STATEMENT OF W. RUSSELL WITHERS, JR., PRESIDENT, WITHERS

BROADCASTING COMPANIES; ON BEHALF OF THE NATIONAL ASSOCIATION OF

BROADCASTERS

Good morning Chairman Inouye, Vice Chairman Stevens, and Committee Members, my name is W. Russell Withers, Jr. The Withers Broadcasting Companies own 

and operate 30 local radio stations and six television stations in seven states. I am 

a member of the Board of Directors of the National Association of Broadcasters 

(NAB), on whose behalf I am testifying today. NAB is a trade association that advocates on behalf of more than 8,300 free, local radio and television stations and also 

broadcast networks before Congress, the Federal Communications Commission and 

other Federal agencies, and the courts. 

My message this morning could not be simpler. The proposed merger to monopoly 

of XM Radio and Sirius Satellite Radio must be rejected. A monopoly in satellite 

radio would clearly harm consumers by inviting subscription price increases, stifling 

innovation and reducing program diversity. This monopoly would also jeopardize the 

valuable free over-the-air, advertiser-supported services provided by local radio stations. Free, over-the-air broadcasters are currently investing in new technologies, including digital audio broadcasting, which will enhance their stations’ competitiveness and ability to serve local communities and audiences. All local stations ask is 

for a fair opportunity to compete in today’s digital marketplace on a level playing 

field. 

12 

1Section 7 of Clayton Act, 15 U.S.C. § 18. 

To Preserve a Fair and Level Competitive Playing Field, a GovernmentSanctioned Satellite Radio Monopoly Must Be Rejected 

Local radio stations are embracing the future by investing significant financial 

and human resources in new technologies, including high definition (HD) digital 

radio and Internet streaming, so that we can continue to compete in a digital marketplace and improve our service to local communities and listeners in myriad ways. 

For example, HD radio offers crystal-clear audio; the ability to air multiple free 

over-the-air programming streams; and the capability to offer additional services, including wireless data enabling text information such as song titles and artists or 

weather and traffic alerts. All local broadcasters ask is for the opportunity to compete in today’s digital marketplace on a fair and level playing field. The proposed 

merger to monopoly of XM Radio and Sirius Satellite Radio must accordingly be rejected. 

Plainly stated, XM and Sirius are asking the government to grant them the sole 

license to the entire 25 MHz of spectrum allocated to satellite radio service. That 

is a state-sanctioned monopoly with an absolute barrier to entry by any other competitor. Currently, XM carries over 170 channels of audio programming, and Sirius 

offers over 130 channels. A combined satellite radio entity would thus control approximately three hundred channels of radio programming in every local market in 

the United States, without any realistic check on its ability to assert market power. 

Even the largest cities, such as New York and Los Angeles, do not have anywhere 

close to 300 terrestrial radio stations, and smaller communities have a mere fraction 

of this number of stations, which, of course, are not all controlled by the same entity. 

The drawbacks of a monopoly in any industry are clear. Monopolists have the 

ability to raise consumer prices with little constraint, to discriminate, and to otherwise engage in anti-competitive practices. They need not compete with other providers to offer top-quality services. Monopoly providers do not respond quickly to 

consumer wants and needs; as a result, innovation suffers. In short, there is no reason to grant the proposed merger to monopoly in the market for national, multichannel mobile audio programming services. 

The XM-Sirius Merger Will Create a Monopoly in the Marketplace 

XM and Sirius claim that they would not be a monopoly if they combined, but 

just one more competitor providing audio services. The companies would have Congress, regulatory agencies and consumers ignore the fact that a merged XM-Sirius 

would be the only licensee of all satellite radio spectrum; ignore the fact that no 

other entity can enter the satellite radio market; and ignore the fact that they 

would be able to use their monopoly power to the detriment of local free over-theair radio stations, which must sell advertising based on the numbers of listeners 

they attract. There is no doubt that the effect of the proposed combination ‘‘may be 

substantially to lessen competition, or to tend to create a monopoly’’ in the provision 

of satellite radio services, contrary to antitrust law.1

Local stations do not compete in the national market for the multichannel mobile 

audio services offered only by XM and Sirius. Broadcasters’ signals are not nationwide, do not move from one geographic area to another, and are not available only 

by subscription. Free over-the-air programming, unlike satellite radio programming, 

must primarily depend on commercial advertising. Even utilizing digital technology, 

local stations can offer only a few multicast programming streams, in comparison 

to the hundreds controlled by XM and Sirius. 

As a subscription service with hundreds of channels, satellite radio can also offer 

highly specialized channels that broadcasters who must ‘‘sell’’ their audiences to advertisers would be economically unable to offer. Sirius, for instance, offers an ‘‘Elvis 

Radio’’ channel airing all Elvis Presley all the time, while XM has a channel devoted 

solely to movie soundtracks. In addition, broadcasters do not—and cannot under existing law and regulation—air certain content offered by subscription satellite radio, 

particularly content that would invite indecency complaints and enforcement actions. XM, for example, offers a number of channels labeled ‘‘XL’’ that frequently 

feature explicit language; these channels include hard rock, heavy metal, punk and 

hip-hop music and uncensored comedy. Sirius also has a number of ‘‘uncut’’ and ‘‘uncensored’’ channels, including hip-hop, comedy, talk (such as Howard Stern), and 

Maxim, Cosmo and Playboy radio. For all these reasons, local terrestrial radio 

broadcasting is not a substitute for national multichannel satellite radio, and consumers regard these services as distinct. 

13 

2 Establishment of Rules and Policies for the Digital Audio Radio Satellite Service, 12 FCC 

Rcd 5754, 5760–61 (1997) (Satellite DARS Report & Order). 3 XM Satellite Radio, Inc., Annual Report (SEC Form 10–K) at 2 (March 15, 2001). 

4Katy Bachman, Buyers: Size Not Enough for Sirius-XM Merger, Media Week (Feb. 26, 2007) 

(quoting Matt Feinberg, Senior Vice President of Zenith Media). 5See Testimony of David A. Balto before the U.S. Senate Committee on the Judiciary, The 

XM-Sirius Merger: Monopoly or Competition from New Technologies at 4 (March 20, 2007). 6 Citigroup 17th Annual Entertainment Media & Telecommunications Conference (Jan. 10, 

2007), webcast available at http://investor.sirius.com/medialist.cfm. 7 Id. 

8See, e.g., Howard’s Way; Satellite Radio, The Economist (Jan. 14, 2006) (churn rate of dissatisfied customers who drop the service is barely 1.5 percent a month for Sirius, which is among 

the lowest for any subscription business). 

Indeed, when initially authorizing satellite digital audio radio service (DARS) in 

1997, the FCC itself recognized that satellite radio, with its national reach, offers 

‘‘services that local radio inherently cannot provide.’’ 2 For example, unlike local terrestrial radio stations, satellite radio can provide continuous service to the long-distance motoring public and to persons living in remote areas. XM has stated that 

its nationwide service can reach nearly 100 million listeners age twelve and older 

who are outside the 50 largest Arbitron radio markets (with the largest number of 

radio stations). XM also estimates that, of these 100 million listeners, 36 million live 

outside the largest 276 Arbitron markets and that 22 million people age twelve and 

older receive five or fewer terrestrial radio stations.3 Unlike even the most powerful 

terrestrial radio stations, which can still only reach a mere fraction of American 

consumers over-the-air, satellite radio can reach all listeners across the country 

with vastly more channels than any single terrestrial broadcaster. Other media industry observers have agreed that ‘‘[s]atellite radio is a national platform,’’ thereby 

clearly differing from locally-licensed and locally-oriented terrestrial broadcast stations.4 Simply put, only XM and Sirius compete in this national, multichannel mobile radio market, and they are proposing to create a monopoly in that market. 

From the point of view of a local broadcaster, I think it’s clear that only XM and 

Sirius compete in this market for national multichannel radio services. Assume, for 

instance, that the merged XM-Sirius were to raise its subscription rate a small 

amount, such as 5 percent. After this price increase, would XM-Sirius lose so many 

customers to other providers such as my local stations that the price increase would 

be unprofitable for the combined company? If not, then free over-the-air radio and 

other audio services are not substitutes for satellite radio and do not compete in the 

same market as providers of satellite radio services. 

Given the substantial differences between a nationwide, multichannel subscription audio service and local, advertiser-supported over-the-air radio service, it is 

highly unlikely that a consumer currently subscribing to satellite radio would drop 

their subscriptions and substitute other audio services for satellite DARS if the price 

of satellite radio were to increase by a small but significant amount, such as 5 percent or even five to ten percent. After XM in 2005 raised its monthly price from 

$9.99 to $12.95 (a nearly 30 percent increase), the company continued to experience 

significant and rapid subscriber growth.5

The parties to the proposed merger have certainly not shown that terrestrial radio 

or other audio technologies such as iPods would have a constraining effect on the 

ability of a combined XM-Sirius to raise prices. In fact, Sirius CEO Mel Karmazin 

stated in January that Sirius was ‘‘open’’ to higher pricing; that Sirius believed 

there was ‘‘elasticity in our price point;’’ and that price increases are ‘‘a good option 

for us.’’ 6 If Sirius believed that it could successfully raise its subscription prices, 

even in the face of competition from XM, then clearly a combined XM-Sirius would 

feel little if any competitive restraints in increasing subscriber fees. Indeed, Mr. 

Karmazin has pointed out that in Canada where Sirius has a ‘‘significant lead in 

satellite radio,’’ their service is ‘‘priced at a higher price point.’’ 7 This confidence in 

the ability of satellite radio providers to increase their prices without losing subscribers shows that satellite radio is the relevant product market for any antitrust 

analysis. 

Other evidence suggests that demand for satellite radio services is highly inelastic 

and would not be significantly lessened by increases in subscriber fees. For instance, 

there is an extremely low ‘‘churn’’ rate among satellite radio subscribers.8 This indicates that other audio services are not regarded by consumers as effective substitutes for satellite radio. 

It is also instructive to note that when analyzing the comparable proposed merger 

of EchoStar and DIRECTV, the only two providers of satellite television services, 

the FCC tentatively defined the relevant market as ‘‘no broader than the entire 

MVPD [multichannel video programming distribution] market.’’ However, the FCC 

14 

9 EchoStar Communications Corp., 17 FCC Rcd 20559, 20609 (2002). 10See First Report in IB Docket No. 06–67, FCC 07–34 at ¶¶ 55–57 (rel. March 26, 2007) (FCC 

Satellite Report). 11See, e.g., Criterion Economics, LLC, Expert Declaration of J. Gregory Sidak Concerning the 

Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc. at 8–33 (March 16, 2007) (Criterion Economics Report); The Carmel Group, 

White Paper, Higher Prices, Less Content and A Monopoly: Good for the Consumer? The Proposed Sirius-XM Merger, Its Harmful Impact on Consumers, Content Providers and Performing 

Artists at 3–6 (April 2007) (Carmel White Paper). 12 CD Radio Comments in IB Docket No. 95–91, at 17. 

found that the product market in question ‘‘may well be narrower than that,’’ and 

might include only the two national satellite television providers, excluding multichannel cable operators as well as local terrestrial broadcast television stations.9

Similarly, local terrestrial radio stations should not be regarded as competing in the 

marketplace for nationwide multichannel satellite radio services. 

Perhaps most significantly, just last month the FCC treated satellite DARS as a 

separate market in a report to Congress on satellite competition.10 The FCC defined 

this market as a ‘‘national’’ one, consisting of ‘‘satellite audio programming provided 

to persons within the United States for a fee.’’ FCC Satellite Report at ¶¶ 55–56. 

Clearly, local radio stations are not participants in this market for national audio 

programming provided for subscription fees. Consistent with the FCC’s analysis, a 

number of analysts have recently concluded that XM and Sirius are the only participants in the national multichannel mobile radio market.11

In sum, it is clear that the proposed merger of XM and Sirius would substantially 

‘‘lessen competition’’ or ‘‘tend to create a monopoly’’ in the market for nationwide, 

multichannel mobile audio programming services, contrary to the Clayton Act. As 

explained in detail below, a XM-Sirius merger would further violate FCC rules and 

precedent, congressional policy and established antitrust case law; would result in 

significant competitive harms without any corresponding public interest benefits; 

and would reward companies with a history of rule violations by granting them a 

monopoly in the provision of nationwide multichannel audio services. 

The Proposed Merger Violates FCC Rules And Precedent, Congressional Policy and 

Judicial Decisions 

The FCC expressly declined to allow a monopoly when it originally allocated spectrum for satellite radio service in 1997. It chose not to permit a monopoly satellite 

radio service because ‘‘licensing at least two service providers will help ensure that 

subscription rates are competitive as well as provide for a diversity of programming 

voices.’’ Satellite DARS Report & Order, 12 FCC Rcd at 5786. And, I note, the agency was assuming at that time that each provider would control about 50 channels, 

not the 300 channels that a united XM-Sirius would have today. 

Ironically, the FCC in part based its decision to require multiple satellite radio 

providers on arguments presented by Sirius. During the FCC’s consideration of how 

many different satellite radio providers it should authorize, Sirius (then called CD 

Radio) argued strenuously that multiple providers were necessary to ‘‘assure intraservice competition,’’ including price competition, and to guarantee a diversity of 

program offerings.12 Given these competitive concerns, Sirius explicitly stated that 

no satellite radio provider should ever be permitted to combine with another provider. See CD Radio Comments at 18. Now, only a few years later, Sirius apparently 

sees no problem with allowing the satellite radio service to become monopolized by 

a single provider with control over the entire national market. 

But in fact it would be entirely inconsistent with the pro-competitive satellite 

radio licensing scheme created by the Commission to now allow XM and Sirius to 

combine into a monopoly enterprise. At the urging of the parties, including Sirius, 

the Commission in 1997 explicitly prohibited any such future merger by determining that, ‘‘after DARS licenses are granted, one licensee will not be permitted 

to acquire control of the other remaining satellite DARS license.’’ Satellite DARS Report & Order, 12 FCC Rcd at 5823. There is no basis for reversing that decision 

now. 

In a parallel case in 2002, the Commission refused to permit a merger of the only 

two nationwide Direct Broadcast Satellite (DBS) licensees, EchoStar and DIRECTV. 

In rejecting this proposed merger, the Commission found in a unanimous vote that 

the combination would undermine its goals of increased and fair competition in the 

provision of satellite television service. The agency also found that the claimed benefits of efficient spectrum use were outweighed by substantial potential public interest harms that might result from the transaction, including reduced innovation, impaired service quality and higher subscription prices. The Commission further 

stressed that the merger would eliminate a current viable competitor from every 

15 

13See EchoStar Communications Corp., 17 FCC Rcd 20559, 20562, 20626, 20661–62 (2002) 

(EchoStar/DIRECTV Merger Order). 14See, e.g., FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001); FTC v. Cardinal Health, 

Inc., 12 F. Supp. 2d 34, 66 (D.D.C. 1998). 15See, e.g., FTC v. Staples, Inc., 970 F. Supp. 1066, 1081 (D.D.C. 1997) (enjoining merger of 

two competing office supply superstores where the merger would have left only one superstore 

competitor in 15 metropolitan areas and only two competing superstores in 27 other areas). 16See http://blog.fastcompany.com/archives/2007/03/14/mellkarmazinslgreatestlhits.ht 

ml?partner=rss, quoting Mel Karmazin from Advertising Age (April 11, 2005). 17For example, in 2004 after Sirius and the National Football League executed a seven-year 

agreement for carriage of NFL games, XM partnered with Major League Baseball in an 11-year 

agreement for carriage of baseball games. Similarly, in 2004 Sirius announced its deal with 

Howard Stern shortly after XM announced the return of ‘‘shock jocks’’ Opie & Anthony. Just 

a few days apart in 2005, XM announced a new women’s talk channel, and Sirius announced 

the launch of the Cosmopolitan-branded women’s channel. In early 2006, XM announced coverage of Big East college basketball and football, while Sirius announced the coverage of every 

game of the NCAA basketball tournament. Numerous other examples of competing programming initiatives can be cited. Similar competitive actions and reactions can be seen in the two 

companies’ introduction of their first portable devices; in the launching of their ‘‘family discount’’ 

and ‘‘preferred plan’’ for additional subscriptions at discounted rates; in reaching agreements 

with various automobile manufacturers and rental car companies for the installation of their 

satellite radios; and in other promotional efforts. 

market in the country and would result in one entity holding the entire available 

spectrum allocated to the DBS service.13

For precisely the same reasons, XM and Sirius should not be permitted to create 

a monopoly that would eliminate a viable competitor from every market across the 

country and that would control all the spectrum allocated to a nationwide satellite 

service. Such a merger would likely ‘‘increase the incentive and ability’’ of the parties ‘‘to engage in anticompetitive conduct.’’ EchoStar/DIRECTV Merger Order, 17 

FCC Rcd at 20662. 

Beyond violating FCC rules and precedent, such a government-sanctioned monopoly would clearly also be inconsistent with congressional policy favoring competition 

over monopoly, as expressed in the 1996 Telecommunications Act, and with longstanding enforcement of the antitrust laws. Indeed, the courts have held that even 

mergers to duopoly are, on their face, anticompetitive and contrary to the Federal 

antitrust laws.14 Without question, a merger to monopoly would be anticompetitive, 

inconsistent with antitrust principles and contrary to judicial decisions.15 Or, to 

quote Sirius CEO Mel Karmazin, ‘‘it would be great if there was a monopoly, but 

the second best thing is a duopoly.’’ 16

XM and Sirius Will Be Able To Exercise Virtually Unlimited Market Power in the 

Closed National Radio Market, to the Detriment of Consumers, Programming 

Suppliers and Other Audio Service Providers 

The harms that would result from this proposed merger would be numerous and 

obvious, affecting content suppliers, consumers and other providers of audio services. Monopoly status would clearly enable the merged company to exert greater leverage over programming suppliers, who would be unable to play Sirius and XM off 

each other to obtain access to a satellite radio provider on favorable terms. If this 

merger is approved, the united XM and Sirius will be able to dictate price to programming suppliers on a ‘‘take it or leave it’’ basis. 

Eliminating competition in the national mobile radio market would also greatly 

reduce incentives for the combined XM and Sirius to innovate, to the clear detriment of consumers. A monopolistic market structure is inevitably less innovative 

than a competitive one, and the consumers of satellite radio service will accordingly 

fail to benefit from innovations such as new programming services and technical improvements. An examination of the past programming and marketing initiatives of 

XM and Sirius demonstrates how consumers have benefited from competition between them.17 Given the evident incentives for competitors to innovate, it is hardly 

surprising that, when declining to approve the EchoStar/DIRECTV merger, the FCC 

found that the satellite television merger ‘‘would likely reduce innovation and service quality.’’ EchoStar/DIRECTV Merger Order, 17 FCC Rcd at 20626. 

Perhaps most obviously, monopoly status would permit a merged XM-Sirius to 

raise subscription fees. Without the presence of a similarly-situated, direct competitor, a satellite radio monopolist could raise rates without any realistic competitive 

check on its actions. The FCC previously rejected the EchoStar/DIRECTV merger 

due to concerns that consumers were ‘‘likely to suffer’’ harms from the ‘‘higher prices 

likely to result’’ from the proposed satellite television combination. EchoStar/ 

DIRECTV Merger Order, 17 FCC Rcd at 20626. The courts have similarly stopped 

mergers to monopoly on the grounds that such mergers would allow the combined 

16 

18The combined XM-Sirius could also easily raise rates on other packages of programming, 

including ones most similar to the programming being offered today. 19See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines 

at 25–26 (April 8, 1997) (DOJ Merger Guidelines). 

company ‘‘to increase prices or otherwise maintain prices at an anti-competitive 

level.’’ FTC v. Staples, 970 F. Supp. at 1082. 

Beyond resulting in rate increases for consumers, the XM-Sirius monopoly would 

also likely reduce program diversity. As explained by the Commission when authorizing XM and Sirius, competing satellite radio providers would each have incentives 

to diversify their own program formats, thus providing valuable niche programming. 

See Satellite DARS Report & Order, 12 FCC Rcd at 5762. Without such competition, 

program diversity would likely be adversely affected, with consumers losing music 

and talk formats, especially niche ones. 

There is also the very real risk that a combined XM-Sirius will use its market 

power to force content providers (including providers of highly valued sports programming) to deal only with them, to the detriment of consumers and other distributors of audio programming, including local radio stations. If the merger is approved, it may only be a matter of time before the American public can listen to 

their favorite baseball or college football team by paying whatever monopoly rents 

a combined XM-Sirius chooses to charge. We’ve seen it happen with cable television, 

and given the obvious incentives, there is every reason to expect the same thing to 

happen here. In sum, in a monopoly environment, satellite radio subscribers would 

pay higher prices for less diverse and less innovative programming. 

Beyond harming programming suppliers and consumers, a satellite radio monopoly would also have the incentive and the opportunity to engage in anticompetitive 

practices against other audio service providers, especially local radio broadcasters. 

For example, after a satellite monopoly restructures (unbundles) its program offerings, as promised, we can expect, based on press reports, that the monopoly will attempt to accelerate the acquisition of new subscribers by offering them a lower-cost 

point of entry—likely a basic advertiser-supported tier with fewer channels offered 

for less than the current $12.95 per month. On its face, such a plan may not sound 

bad, but of course no introductory price would be locked in and a monopoly provider 

could easily raise this price at a later time to increase profits at the expense of consumers.18

Furthermore, the merger parties’ announced intention to pursue advertising revenue is plainly problematic when one considers the monopoly status of the merged 

satellite radio operator. With monopoly rents from subscription service, the satellite 

radio monopoly would have the incentive and ability to cross subsidize its advertiser-supported channel offerings using the monopoly rents from subscription service, likely resulting in unfair competition in the form of predatory, cut-throat pricing 

in national advertising markets. In addition, the satellite radio monopoly would not 

stop at national advertising. The extensive terrestrial repeater networks of Sirius 

and XM, when combined under common control, would offer substantial opportunities for entry into local advertising markets by a satellite radio monopoly. The rates 

for local advertising could be set artificially low with cross-subsidization from monopoly subscription fees. The valuable free, over-the-air service provided by local 

radio stations—which is entirely advertiser-supported—would be jeopardized by 

these developments. Ultimately, listeners and local communities would be the losers, as important services, including local news and emergency information, are 

eroded by a lack of advertising revenues to support them. 

A merged XM-Sirius could moreover maintain any supra-competitive subscription 

prices or predatory behavior toward other audio service providers because satellite 

radio is a closed market. No other entity can enter the national multichannel audio 

service market. The FCC has not authorized any other licensees to provide satellite 

DARS. Even in the highly unlikely event that the FCC would in the future allocate 

additional spectrum to this service to permit entry by new satellite providers, this 

entry would clearly be insufficient to mitigate the anticompetitive effects of the proposed merger. For example, the Department of Justice requires that, for potential 

entry to be considered, it must generally be achieved within 2 years.19 This is extremely unlikely in the case of satellite radio, as it took XM and Sirius nearly 4 

years from the grant of spectrum by the FCC to commercial availability, including 

the technically challenging step of launching satellites. Other entry barriers are also 

very high, including the capital costs (such as the costs of multi-million dollar satellites), programming acquisition costs, and subscriber acquisition costs. Therefore, 

the threat of entry by other entities will be completely ineffective in constraining 

17 

20See, e.g., FTV v. Heinz, 246 F.3d at 717; FTC v. Staples, 970 F. Supp. at 1086–87; FTC v. Swedish Match, 131 F. Supp. 2d 151, 170–71 (D.D.C. 2000). 21Maxwell Murphy, Karmazin Talks Sirius-XM Pact on Stern Show, Dow Jones News Service 

(Feb. 26, 2007). 22 Criterion Economics Report at 46–47 (finding that ‘‘both Sirius and XM are expected to realize positive earnings in 2007’’). 

short-term (or even long-term) price increases or other anticompetitive behavior by 

the combined XM-Sirius. 

The anticompetitive effects of the proposed merger are thus enhanced by not 

merely high, but practically insurmountable, barriers to entry. The courts have consistently rejected mergers where the merging parties were unable to show that reduced competition caused by the merger would be ameliorated by competition from 

new entrants that could come into the market.20

No Marketplace or Business Conditions Justify the Risk of Monopoly 

There is no need to risk all these harms to consumers, content suppliers and other 

audio service providers by creating a national monopoly. Satellite radio is still in 

its early stages of development. And neither XM nor Sirius is a failing company. 

From an economic perspective, the classic ‘‘shut down’’ analysis demonstrates that 

a firm will exit an industry when its average variable cost exceeds price, which implies that the last unit sold makes a negative contribution to the firm’s margins. 

When applied to XM and Sirius, there is no basis to conclude that either company 

is ready to exit the industry. A review of reports by equity analysts demonstrates 

that Sirius and XM are currently earning positive margins on their last subscribers. 

Moreover, as satellite radio penetration rates increase, average variable costs will 

decrease and thereby generate even larger margins. Thus, there is no basis in economic fact for a failing-firm argument. See Criterion Economics Report at 3–4; 43. 

A very recent analysis by the Carmel Group concluded that ‘‘there is no liquidity 

crisis on the horizon for satellite radio’’ and that ‘‘both Sirius and XM have enough 

cash to support their current business models.’’ Carmel White Paper at 4–5. 

In fact, Sirius and XM do not believe they will go out of business if the merger 

does not occur. Sirius CEO Mel Karmazin has publicly stated that he is ‘‘optimistic’’ 

about the company’s future whether or not the merger takes place.21 In a recent 

filing with the Securities and Exchange Commission, XM disclosed a set of questions-andanswers regarding the merger prepared for and distributed to its employees. I quote: ‘‘Can Sirius and XM succeed as stand-alone companies if the merger 

is not approved by regulators?—YES. That said, we believe a merger is the preferred option for Sirius and XM, our shareholders and customers . . . .’’ Of course 

Sirius and XM would prefer not to compete with one another, and would prefer to 

reap the benefits afforded by monopoly status. What company wouldn’t? That’s why 

the United States has and enforces antitrust laws. 

Claims that XM and Sirius are weak or failing businesses based on their levels 

of debt and expenses must be viewed skeptically. It is true that XM and Sirius have 

had some extraordinary expenses—like the nearly $83 million in stock that Sirius 

awarded to Howard Stern in January, on his first anniversary on satellite radio. Indeed, the high costs of locking-up national and regional programming, especially 

sports programming, on an exclusive basis accounts for a great deal of the cost overhead. But should companies expect a government bailout for questionable business 

decisions? And the fact that XM and Sirius experienced losses in the past as they 

first launched their businesses has little bearing on either company’s ability to make 

positive earnings going forward.22 Just last month, the FCC reported that the two 

satellite radio providers had high growth rates for both subscribers and revenues 

and that revenues per user have begun to rise. FCC Satellite Report at ¶ 180. 

Changes in the audio marketplace do not justify this merger either. These 

changes have encouraged local radio stations to enhance their competitiveness by 

converting to digital audio broadcasting and by utilizing the Internet for streaming 

and podcasting. But the introduction of new audio products has not prompted terrestrial radio broadcasters to ask for an unjustified government licensed and sanctioned monopoly. For all the reasons described above, monopolies are inherently bad 

and should not be permitted. 

XM and Sirius Have a Long History of Violating FCC Rules 

The government cannot and should not rely on any promises that a united XM 

and Sirius, as a government-sanctioned monopoly, will not cause harm to consumers 

or other audio service providers. Their past behavior in a number of instances shows 

otherwise. 

First, when initially authorizing satellite radio, the FCC adopted a rule on receiver interoperability that was designed to promote competition by enhancing conVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\78881.TXT JACKIE
18 

23 47 CFR § 25.144(a)(3)(ii). 24 47 CFR Part 15. 25See, e.g., ‘‘A Mystery Heard on Radio: It’s Stern’s Show, No Charge,’’ New York Times, January 26, 2007 at A17. 26FTC v. Heinz, 246 F.3d at 720, quoting Department of Justice Merger Guidelines, § 4. 27 United States v. Franklin Electronic Co., Inc., 130 F. Supp. 2d 1025, 1035 (W.D. Wis. 2000). 

sumers’ ability to switch between satellite providers. Satellite DARS Report & 

Order, 12 FCC Rcd at 5796. Despite a clear FCC directive that their satellite radio 

systems must include ‘‘a receiver that will permit end users to access all licensed 

satellite DARS systems that are operational or under construction,’’ 23 no such device is available to consumers today. While both companies certified nearly 10 years 

ago that they would comply with this pro-competition, pro-consumer requirement, 

neither XM nor Sirius markets a consumer-friendly interoperable device. 

Second, both XM and Sirius have violated FCC rules governing the production 

and distribution of their receiver equipment,24 which are designed to ensure that 

these types of devices do not interfere with broadcast radio stations or other licensed 

spectrum users. As a result of XM and Sirius producing and distributing receiver 

equipment that violates—and in a number of cases very greatly exceeds—FCC limits on the power levels for such equipment, many listeners to terrestrial radio stations experience ‘‘bleedthrough’’ and receive the XM or Sirius signal without warning through their radios. As has been widely reported, the FCC has received many 

complaints from both commercial and noncommercial listeners who suddenly hear 

uncensored and unwelcome satellite radio programming on their car radios.25 Local 

radio stations concerned about this interference to their services have forwarded numerous listener complaints to the FCC. 

Third, both XM and Sirius have routinely and regularly violated FCC technical 

rules in connection with their special temporary authority to use terrestrial repeaters. For years XM operated more than 142 repeaters (or 18 percent of all its repeaters) at unauthorized locations and at least 19 of its repeaters without any FCC authorization at all. Even after confessing and seeking the agency’s forgiveness for its 

violations, XM to our knowledge currently continues to operate at least four of its 

repeaters without any FCC authorization. Also troubling is XM’s confession that for 

years it has operated more than 221 terrestrial repeaters (or 28 percent of all its 

repeaters) at unlawful power levels. In mid-February, the FCC issued a Letter of 

Inquiry to XM about its unlawful repeater network. Sirius has engaged in comparable and other technical violations in connection with its terrestrial repeaters, 

constructing at least 11 of its repeaters at locations different from what they reported to the FCC, including one in Michigan that is 67 miles away from its reported and authorized location. 

Against this backdrop of rule violations, allowing XM and Sirius to merge, contrary to previous FCC decisions and decades of communications policy and antitrust 

law, would be, at the least, unjustified and unwise. Granting these companies a monopoly would likely further embolden them to pay even less attention to the rules 

of the road and to consumer welfare in the future. 

The Proposed XM-Sirius Merger Will Generate No Public Interest Benefits and 

Should Be Summarily Rejected 

Without question, XM and Sirius will be unable to meet their burden of proof 

demonstrating the high level of public interest benefits to even consider granting 

a government-sanctioned monopoly. As an initial matter, ‘‘[e]fficiencies almost never 

justify a merger to monopoly or near monopoly,’’ such as the proposed XM-Sirius 

merger.26

In declining to approve the comparable EchoStar/DIRECTV merger, the FCC explained that where ‘‘a merger is likely to result in a significant reduction in the 

number of competitors and a substantial increase in concentration, antitrust authorities generally require the parties to demonstrate that there exist countervailing, extraordinarily large, cognizable, and non-speculative efficiencies that are 

likely to result from the merger.’’ EchoStar/DIRECTV Merger Order, 17 FCC Rcd 

at 20604 (emphasis added). The courts have similarly stressed that proof of extraordinary efficiencies is required to rebut the presumption that a merger in a concentrated market (such as the current duopoly market for satellite radio service) 

will be anticompetitive. See, e.g., FTC v. Heinz, 246 F.3d at 720–21. Claims of greater efficiencies must be verifiable through evidentiary showings that are ‘‘more than 

mere speculation and promises about post-merger behavior.’’ Id. At 721. 

And not only must the parties proposing such a merger show that very significant 

efficiencies would result, they must show that these efficiencies ‘‘would lead to benefits for consumers.’’ 27 The courts have rejected insufficiently documented claims 

19 

28See, e.g., FTC v. Swedish Match, 131 F. Supp. 2d at 172; FTC v. Staples, 970 F. Supp. at 

1090. 29Michael Rapoport, ‘‘Cost-Cutting Claims Raise Static for Satellite Radio Deal,’’ Chicago 

Tribune (March 4, 2007) (citing analysts from Wachovia Securities and Oppenheimer & Co., who 

were highly skeptical about the ‘‘synergies’’ claimed by XM and Sirius). 30See Frank Ahrens, ‘‘In the Same Orbit, but on Different Planets,’’ Washington Post, Feb. 

21, 2007 at D01 (‘‘Karmazin said a merger would lead to savings by eliminating duplications 

in programming and operations,’’ and that the ‘‘companies plan to design equipment to let customers receive signals from both companies, which use different satellite technologies’’). 31Mary Lou Steptoe & David Balto, Finding the Right Prescription: The FTC’s Use of Innovative Merger Remedies, 10 Antitrust 16 (Fall 1995). 

from merger parties that cost savings resulting from efficiencies would actually be 

passed on to consumers in the form of lower prices.28 Common sense further suggests that a monopolist such as the merged XM-Sirius would have little or no incentive to pass on cost savings to consumers. Thus, unsubstantiated claims about any 

consumer benefits flowing from the large cost savings that would supposedly result 

from the XM-Sirius merger are woefully inadequate to justify a combination reducing competition in a concentrated market. In fact, analysts have expressed considerable doubt that XM and Sirius would even be able to cut the claimed billions in 

costs by merging, let alone pass these cost savings onto consumers. An examination 

of the companies’ cost structure (especially their long-term programming commitments) shows that achieving these cost savings will be ‘‘very difficult and will take 

a long time, if it can be done at all.’’ 29

Moreover, to be considered in justifying a merger, claimed efficiencies must be 

‘‘merger-specific’’—that is, they must be ones that neither firm could achieve independently. If the claimed efficiencies are not merger-specific, then ‘‘the merger’s asserted benefits can be achieved without the concomitant loss of a competitor.’’ FTC v. Heinz, 246 F.3d at 721–22. Claims that the merger will allow XM and Sirius to 

market equipment allowing customers to receive signals from both companies are 

not merger-specific; 30 there is nothing preventing them from undertaking such a 

project today except for the fact that they prefer to retain customers on the basis 

of sunk costs in equipment. Similarly, claims that the combined XM-Sirius will provide customers a credit if they choose to block adult programming are not mergerspecific because XM and Sirius could provide these credits to their customers today 

if they wished. 

Clearly, XM and Sirius will fail to meet their heavy burden of demonstrating the 

efficiencies and consumer benefits of their proposed merger to monopoly. Rather 

than producing ‘‘extraordinarily large,’’ beneficial efficiencies, the merger, if approved, would seriously impair marketplace competition and cause real harms to 

consumers. There is no reason to approve a merger that would violate FCC rules 

and precedent, as well as congressional policy, and would grant a state-sanctioned 

monopoly to non-failing companies with a long track record of breaking the rules. 

Even if the parties agreed to price regulation to ensure that satellite radio customers do not pay more (for some period of time) after the merger than they did 

before, such a condition does not justify approval of the proposed merger. Courts 

have rejected mergers despite the merging parties’ promises not to raise prices, observing that ‘‘the mere fact that such representations had to be made strongly 

support[ed] the fears of impermissible monopolization.’’ FTC v. Cardinal Health, 12 

F. Supp. 2d at 67. If XM and Sirius feel obliged to make promises not to raise their 

subscription rates, this clearly shows that they expect to have the market power to 

do so following a merger. 

Permitting a merger based on pricing conditions moreover disregards the very 

reason the antitrust laws apply to mergers—to ensure that markets are structured 

in a way to promote competition. The notion that a competitive market structure, 

which has produced healthy competition between XM and Sirius, should be replaced 

by a monopoly provider subject to price regulation is antithetical to the purpose and 

foundation of the antitrust laws and to congressional policy favoring competition 

over regulation, as expressed in the 1996 Telecommunications Act. The antitrust enforcement agencies have in the past refused to condition merger approval on price 

regulation because they are not ‘‘price-regulatory’’ agencies, ‘‘compliance is difficult 

to monitor,’’ and ‘‘competition is the proper driving force for pricing decisions.’’ 31

In fact, the FCC did not believe that a national pricing plan was an appropriate 

solution to the competitive harms likely to be caused by the proposed EchoStar/ 

DIRECTV merger. Even assuming such a plan could be an effective remedy for competitive harms (which the FCC found unlikely), the FCC concluded that the pricing 

plan was inconsistent with the Communications Act and with regulatory policy favoring the replacement of regulation with competition, especially facilities-based 

competition. EchoStar/DIRECTV Merger Order, 17 FCC Rcd at 20663. Because the 

20 

32See, e.g., Nat’l Society of Professional Engineers v. U.S., 435 U.S. 679, 695 (1978) (antitrust 

laws reflect Congress’ judgment that ‘‘competition will produce not only lower prices, but also 

better goods and services’’); Standard Oil v. FTC, 340 U.S. 231, 248 (1951) (‘‘The heart of our 

national economic policy long has been faith in the value of competition.’’). 

XM-Sirius merger would ‘‘totally eliminate what appears to be a very healthy level 

of intramodal competition among the two-facilities based’’ satellite radio providers, 

it should be rejected, just as the FCC declined to approve the EchoStar/DIRECTV 

merger even with pricing conditions. Id. Regulation is just not a substitute for competition.32

Conclusion 

Local broadcasters fully support vigorous competition on a fair and level playing 

field. Free, over-the-air radio stations are embracing the future by transitioning to 

digital broadcasting so as to remain competitively and financially viable and better 

able to serve their listeners and local communities. Congress should assure the 

maintenance of a competitively level playing field by clearly and expeditiously expressing its opposition to the proposed satellite radio merger to both the Department of Justice and the FCC. 

For all the reasons I discussed in detail above, the proposed merger of Sirius and 

XM is simply anticompetitive. The creation of a monopoly in the closed national satellite radio market would injure consumers and programming suppliers, and impair 

the ability of other audio service providers to compete and to serve listeners. Because it would create a monopoly in violation of the antitrust laws, this proposed 

merger should be summarily rejected. 

The CHAIRMAN. Thank you very much. 

Mr. Kimmelman? 

STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, 

FEDERAL AND INTERNATIONAL AFFAIRS, CONSUMERS 

UNION; ON BEHALF OF COMMON CAUSE, CONSUMERS UNION, 

CONSUMER FEDERATION OF AMERICA, FREE PRESS, 

AND MEDIA ACCESS PROJECT 

Mr. KIMMELMAN. Thank you, Mr. Chairman. Vice Chairman Stevens, Senator Dorgan, Senator Lautenberg. On behalf of Consumers Union, the print and online publisher of Consumer Reports, 

I appreciate the opportunity to testify this morning in opposition 

to this proposed merger. Consumers Union’s major goal for the 

policies related to media and mergers in the media sector is to have 

Congress continue to provide clear direction and promote regulatory action that will prevent efforts to consolidate media in ways 

that puts too much power in the hands of too few owners in this 

important sector of our economy. 

The XM-Sirius proposed merger is just one small example of our 

concerns in these sectors, as Senator Dorgan outlined earlier. It 

may not be that important in the overall market sense, but is enormously important from the perspective of the logic that’s being provided by XM and Sirius to propose this merger, and to urge acceptance of this merger. Our concern is that that logic could open a 

floodgate of very dangerous consolidation across much more important media properties. 

Mr. Karmazin’s pricing premises and logic reminds me of almost 

the same siren song that we heard in 1984, you may recall, when 

the cable industry came to you and said deregulate us because we 

compete with broadcast. We are small, we are very little in that 

market, and we have no incentive to raise our rates because we 

have to take on these big broadcasters, so please let us go. And 

they controlled themselves for 2 years and then, you may recall, 

from 1986 until you stepped in again in 1992, rates skyrocketed 

21 

and anticompetitive behavior was flagrant. This is not a time to repeat that mistake. 

Let me explain why I think there are some special attributes of 

this proposed merger that remind me of that behavior. Is there a 

broadcast audio market that includes satellite radio? Well, think 

about why people might buy XM or Sirius. People who are mobile. 

People who travel a lot, not just in the local community. They lose 

their local broadcast signals as they travel outside of their home 

territory or town. People who want a lot of baseball, a lot of NFL 

football, basketball, but not just their home team. They want a national package. Their local broadcaster can’t offer that. IPods don’t 

offer that. MP3 players don’t offer that. They want unique niche 

programming that in any one market can’t be supported by local 

broadcasts with advertiser support. 

There is not a big enough market, but if you take small pieces, 

small communities around the country, there can be a national 

market for it. There is a unique need for probably 14 to 20 million 

consumer households here being served only by two companies that 

now seek to merge into one. 

Now, is there complementarity? Is there overlap? Sure. People 

listen to their AM/FM radio, CDs in their cars. They listen to 

prerecorded music in conjunction with local broadcast radio, but it 

cannot serve these other needs. It does not and cannot. So they are 

similar in a few ways but not in the fundamental way that antitrust policy or competition policy has to address to protect consumers. And certainly this merger cannot and shouldn’t be allowed 

to satisfy the FCC’s original mandate that there are two satellite 

radio licensees competing against each other. We shouldn’t go back 

on that original promise. So there is a large segment of the consuming public that could be horribly harmed by this. 

But really most importantly, I urge you to consider how the logic 

of comparing iPods, MP3 players and satellite radio would implicate other media transactions. Does that logic lead to more consolidation of television broadcasters? Of cable companies? Of newspapers and broadcast outlets? That’s what we fear. It’s hard to distinguish, from our perspective, the logic being applied to this proposed merger and those transactions that we know are waiting in 

the wings. 

So in conclusion, we urge you to continue to promote more competition and diversity in media ownership, ensure that Federal 

agencies, competition and public interest agencies, reassert these 

strong principles and establish market guidelines that will prevent 

consolidation of media into the hands of a few dominant players. 

Unfortunately, this merger is just that type of consolidation. Thank 

you. 

[The prepared statement of Mr. Kimmelman follows:] 

22 

1 Common Cause is a nonpartisan nonprofit advocacy organization founded in 1970 by John 

Gardner as a vehicle for citizens to make their voices heard in the political process and to hold 

their elected leaders accountable to the public interest. Now with nearly 300,000 members and 

supporters and 36 state organizations, Common Cause remains committed to honest, open and 

accountable government, as well as encouraging citizen participation in democracy. 2 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws 

of the state of New York to provide consumers with information, education and counsel about 

goods, services, health and personal finance, and to initiate and cooperate with individual and 

group efforts to maintain and enhance the quality of life for consumers. Consumers Union’s income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union’s own 

product testing, Consumer Reports with more than 5 million paid circulation, regularly, carries 

articles on health, product safety, marketplace economics and legislative, judicial and regulatory 

actions which affect consumer welfare. Consumers Union’s publications carry no advertising and 

receive no commercial support. 3The Consumer Federation of America is the Nation’s largest consumer advocacy group, composed of over 280 state and local affiliates representing consumer, senior citizen, low-income, 

labor, farm, public power an cooperative organizations, with more than 50 million individual 

members. 4Free Press is a national, nonpartisan organization with over 350,000 members working to 

increase informed public participation in crucial media and communications policy debates. 5Media Access Project (MAP) is a 35-year-old non-profit tax exempt public interest media and 

telecommunications law firm which promotes the public’s First Amendment right to hear and 

be heard on the electronic media of today and tomorrow. 

PREPARED STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, FEDERAL AND

INTERNATIONAL AFFAIRS, CONSUMERS UNION; ON BEHALF OF COMMON CAUSE, 

CONSUMERS UNION, CONSUMER FEDERATION OF AMERICA, FREE PRESS, AND MEDIA

ACCESS PROJECT

Common Cause,1 Consumers Union (CU),2 Consumer Federation of America 

(CFA),3 Free Press (FP),4 and the Media Access Project 5 urge the Congress, the 

Federal Communications Commission and antitrust authorities to hold the line 

against the growing threat to an increasingly homogenized and concentrated media 

sector: mergers that concentrate ownership in too few hands. The XM-Sirius Radio 

merger exacerbates longstanding concerns regarding excessive concentration in the 

media market and the effects of concentration on programmer access and consumer 

choice. But concerns regarding this merger extend beyond general media consolidation: based on the evidence available today, the proposed transaction is a merger 

to monopoly in a distinct product market that threatens to increase consumer costs, 

reduce consumer choice and impede competition. Simply put, this merger is not in 

the public interest. 

The proposed merger of the only two satellite subscription radio companies should 

raise a red flag for both antitrust officials and communications regulators whose job 

is to promote competition and consumer choice in the marketplace. Not only were 

XM and Sirius prohibited from merging as a condition of getting their licenses to 

use the public airwaves to deliver their services, but also, as demonstrated by the 

enormous growth of satellite subscription radio service over just a few years, this 

service is, in fact, a distinct product and could develop into a vibrant competitive 

market absent the merger. We believe the companies who seek to merge so soon 

after they began competing and offering consumers innovative new services; so soon 

after they demonstrated that subscription radio is attractive to consumers and could 

be more so with consumer-friendly pricing and improved equipment interoperability; 

and in total disregard of the licensing conditions they accepted in order to use public 

resources, carry an enormous burden to demonstrate why public officials should 

abandon all normal rules associated with competitive markets and spectrum licensing to allow this merger. 

XM and Sirius have not met that burden. Therefore, the Department of Justice 

(DOJ) and Federal Communications Commission (FCC) should reject this merger 

unless and until XM and Sirius present clear-cut facts demonstrating how any of 

its purported benefits to consumers offset its anti-consumer and anti-competitive 

harms. 

The Danger of an Overbroad Market Definition 

This merger raises the most fundamental issues in antitrust law and poses a substantial threat to consumers and competition policy generally. In order to exercise 

their responsibility under the competition laws, the Federal agencies must start 

from the assumption that the XM-Sirius merger is a merger to monopoly—a merger 

between the only two firms in the market for national subscription radio service. 

A proper definition of the relevant product market proves that assumption to be 

23 

6 ‘‘Testimony of Mr. Mel Karmazin, Chief Executive Officer, Sirius Satellite Radio Regarding 

Competition and the Future of Digital Music, before the Antitrust Task Force of the House Judiciary Committee, February 28, 2007, SEC filing XX, FCC filing XX. 7Scott Cleland, ‘‘XM-Sirius merger is anti-competitive: The Emperor Has NO Clothes,’’ Precursor Watch, at 1. 8See Comments of Consumer Federation of America, Consumers Union, and Free Press, In 

the Matter of 2006 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act 

of 1996, MB Docket No. 06–121, October 23, 2006. 

true. But an overbroad definition in this instance would create a devastating precedent for all media competition policy going forward. 

The merging parties claim that the merger does not create a monopoly: the existence of cross-platform and intermodal competition means that all forms of distribution of audio content are interchangeable, even those that function merely as storage devices, and must be included in the market definition.6 They assert that national subscription radio service competes, directly and indirectly, with a variety of 

partial substitutes. Through this overbroad market definition, the merging parties 

claim that they represent two small fish in a large ocean, rather than the only two 

fish in a small pond. Such an overbroad definition would have disastrous consequence for consumers of satellite radio as well as both for antitrust and public 

interest oversight in all media markets generally. By allowing the only two companies selling a specific type of media product to merge on the basis of erroneous 

claims of cross-platform or intermodal competition, the fundamental basis on which 

all public interest regulation of broadcast media rests is destroyed. 

Concern about the danger of too broadly defining the product market is shared 

across the ideological spectrum. Gregory Sidak, former Deputy General Counsel of 

the FCC and Economist to the Council of Economic Advisers in the Executive Office 

of the President under the Bush Administration, argues: 

‘‘Broadcasting is more heavily regulated than other media. The FCC has justified that heavier regulation (and lower First Amendment protection) on the 

basis of four factors: the pervasiveness of broadcast speech, the scarcity of 

broadcast spectrum, the governmental interest in preserving viewpoint diversity 

over the airwaves; and the traditional goal of fostering localism in broadcasting. 

If, however, all aurally delivered media are totally indistinguishable from each 

other—as XM and Sirius claim—and this merger is permitted to proceed on 

that basis, then it will have been approved on a rationale that would make the 

inferior First Amendment state of broadcasting untenable. All content and 

structural regulation of the broadcast industry would be constitutionally indefensible.’’ 

Scott Cleland, who describes himself as ‘‘a fervent and principled advocate of free 

markets and competition’’ reaches the same conclusion with respect to the antitrust 

laws: 

‘‘If the DOJ and the FCC endorse and enable an obvious government-created 

duopoly to become a monopoly, they would move the goal posts so far from existing precedent that they could not legally justify blocking any merger in the 

future . . . 

. . . If the DOJ or the FCC approved this obvious attempt of monopolization, it 

would be open season on Federal antitrust competition policy.’’ 7

The importance of understanding the broad implications of the theory that has 

been offered to justify this merger becomes even more apparent when we consider 

the position of the National Association of Broadcasters (NAB) on the merger. While 

the NAB argues in this case that the market should not be defined to include crossplatform and intermodal competition, in the media ownership proceeding ongoing at 

the FCC, the NAB argues exactly the opposite—a position we have flatly rejected 

and which is not supported by the evidence.8 If antitrust authorities accept XM-Sirius’ overbroad definition of the mobile listening market, little foundation remains for 

rejecting NAB’s overbroad definition of the media market generally. 

Merger to Monopoly 

Careful market structure analysis, rigorously applied in all circumstances—media 

ownership, merger review, and public interest oversight—shows that the overbroad 

definition of the market offered by XM-Sirius is simply wrong. Thus, as both Sidak 

and Cleland note, the broad definition of the product and geographic market that 

24 

9 In congressional testimony, the only public interest group to support the merger has been 

Public Knowledge, see ‘‘Testimony of Gigi B. Sohn, President, Public Knowledge, Satellite Radio 

Regarding Competition and the Future of Digital Music, before the Antitrust Task Force of the 

House Judiciary Committee, February 28, 2007; ‘‘Testimony of Gigi B. Sohn, President, Public 

Knowledge Regarding The XM-Sirius Merger: Monopoly or Competition from New Technologies,’’ 

Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition and Consumer 

Rights, March 20, 2007. 10Testimony of David A. Balto regarding The XM-Sirius Merger: Monopoly of Competition 

from New Technologies, Senate Committee on the Judiciary Subcommittee on Antitrust, Competition and Consumer Rights, March 20, 2007, at 1. 11 Id. 12 Balto, at 5. 

XM-Sirius and their supporters 9 use is so obviously flawed that an unbiased analysis will easily conclude that the merger violates both the Sherman Act and the 

1934 Communications Act as a merger to monopoly. The product and geographic 

market characteristics of satellite radio are easily identifiable and quite distinct 

from other mobile and stationary audio products. It is national, mobile, programmed 

radio entertainment. There are two, and only two, entities providing such a service. 

The alternatives the companies contend are substitutes do not possess this set of 

characteristics and therefore cannot be said to compete directly with the service. 

The two services deliver, and require consumers to purchase, huge bundles of well 

over 100 channels of programmed music, news and entertainment—programming 

that is nationally available. 

We call to the Committee’s attention the testimony of David Balto before the Senate Judiciary Committee.10 Mr. Balto, a former and long-time attorney at the Department of Justice and the Federal Trade Commission who counts among his credits litigation in opposition to mergers such as Staples/Office Depot, Time Warner/ 

Turner, and Time Warner/AOL, examined the economic characteristics of the product that satellite radio companies sell. He cautioned that ‘‘[s]imply because certain 

products seem similar to the products being offered by the merging parties does not 

mean they are in the same relevant product market.’’ 11

Mr. Balto compared the XM-Sirius merger to the proposed Staples/Office Depot 

merger, which was blocked by the courts, noting that the court concluded that the 

relevant product market was the ‘‘superstore market’’ not the market for office supplies generally. The relevant product market was properly defined not just by the 

products being offered, but by the overall shopping experience. The same appropriate analysis applied to the XM-Sirius merger will produce a similar result. Using 

a similar analysis, Balto concluded that satellite radio is a distinct product: 

‘‘Although certain parts of the satellite radio package can be acquired through 

other audio outlets, including web-based radio, digital media services, and terrestrial radio, no other service ofers the complete variety of audio entertainment 

options offered by satellite radio.’’ 

The relevant market characteristics Mr. Balto identifies are: 

• Aggregating demand: Satellite radio has the breadth and depth of programming 

because it can aggregate demand unlike other forms of audio entertainment; 

• Ubiquitous service: Satellite radio follows you everywhere. Satellite radio travels 

with the person, assuring the same level of sound quality or content wherever 

you are; 

• Product variety: Satellite radio offers a far greater number of stations than terrestrial radio or even HD radio; 

• Diverse formulated programming: Satellite radio formats program content to 

provide diversity, introduce listeners to new music and new forms of entertainment; 

• Unregulated content: The content of satellite radio is not regulated. This permits a wide variety of product offerings to satisfy consumer demand; satellite 

radio is not regulated or constricted by the rules of the FCC.12

Evaluating the market alternatives according to Mr. Balto’s criteria, it becomes 

clear why he came to the conclusion he did. The touted competitors are not competitors in any meaningful sense. There are distinct differences in product offerings, 

quality, listener experiences, mode of delivery, and regulation. None of the competing services and platforms shares the core characteristics of satellite radio. Each 

lacks one or more of the core defining characteristics of satellite radio: national service; programmed service; and mobile service. 

25 

13Sirius states ‘‘The biggest difference is that Sirius has 100 percent commercial-free music 

free channels. What this means for you is that we offer you music the way it should be and 

the way the artist intended it: without a single commercial interruption. Our music programming also has a breadth and depth of programming basically unavailable on regular radio. We 

play songs that you know and love, and many songs that we know you will love when you hear 

them for the first time. We also have hundreds of exclusive live interviews and performances 

you won’t hear anywhere else and produce many interesting and engaging live talk shows in 

our national broadcast studios.’’ XM promotes on its website the availability of 69 commercialfree music channels. 14 Expert Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the 

Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc., March 16, 2007, 

p. 6. 15For example, XM currently offers Laugh Attack, promoted as ‘‘Uncensored Comedy;’’ and 

Opie and Anthony, two radio personalities whose former on-air performances resulted in FCC 

fines. Both XM and Sirius offer Playboy Radio, and adult entertainment premium channel. Sirius offers Raw Dog Comedy, which provides uncensored comedy; Maxim Radio, promoted as 

‘‘Girls, comedy, sports, music: Maxim Radio is the best thing to happen to men . . . since 

women!;’’ and Howard Stern, the shock jock whose performances have resulted in FCC fines. 

Moreover, both services offer out of market sporting events unavailable on terrestrial radio: Sirius offers the NFL channel and XM offers the MLB Channel. 16www.xmradio.com. 

Terrestrial Radio 

Product and market differences created by the varying licensing regimes for satellite and terrestrial radio must be considered when evaluating whether these entities are competitors. Entry into the satellite Digital Audio Radio Services (SDARS) 

market is restricted by the need to have a license to broadcast at frequencies that 

enable the service to be provided nationwide. During questioning at the Senate Judiciary Committee hearing last month, Sirius CEO Mel Karmazin conceded that it 

was unlikely that another satellite-based competitor would enter the market because of the high barriers to entry. Perhaps because of those barriers and the need 

to ensure competition existed, the original SDARS licenses were issued by the Federal Communications Commission under strict conditions that the two entities are 

not allowed to merge. 

Differences in Federal licensing requirements also demonstrate the clear distinction between satellite radio and terrestrial radio. First, the different restrictions on 

the licenses demonstrate the market differences. Broadcast licenses require the 

service to be offered free of charge, requiring advertiser support. Local radio stations 

adjust their content to the audiences that the advertisers want to reach. Satellite 

radio licenses allow the licensee to support the service through subscription fees, offering largely commercial-free radio—a distinction that Sirius, in particular, widely 

promotes.13 Second, satellite radio travels with the listeners no matter where they 

are, operating in a national market. But terrestrial radio is a local product; stations 

vanish as the listener crosses market boundaries. Third, broadcast licenses are subject to public interest obligations, while satellite services are not. As Greg Sidak 

noted, the licensing differences allow for different market segmentation between the 

two services.14 Terrestrial radio will never be able to provide some of the programming currently offered on satellite not only because of content restrictions,15 but 

also because its licensing requirements limit it to a small geographic market, preventing it from aggregating demand for the types of specialized programming offered on satellite radio. Thus programming on satellite radio tends to be more specialized and more diverse than that of terrestrial radio. 

Thus, while it may be true that satellite competes with terrestrial radio in local 

terrestrial radio markets, terrestrial radio does not and cannot compete with satellite radio in its relevant market—the national market. Indeed, XM’s tag line is 

‘‘Beyond AM. Beyond FM. XM.’’ 16 The emergence of HD radio does not change the 

analysis. In several important ways HD radio is an extension of terrestrial radio. 

It may solve the quality problem of terrestrial radio, but it carries the other weaknesses (as a competitor to satellite) forward. HD radio is still broadcast to a small 

local market. It is still subject to content regulation. It also has substantial consumer equipment costs, which traditional terrestrial radio does not. It may expand 

the capacity of an individual broadcaster a little, but the capacity of local radio still 

is minuscule compared to that of satellite radio providers. 

MP3 Players 

iPods and other content storage devices require consumers to access, choose, and 

download individual selections; they do not provide programmed services. Though 

they have substantial capacity, the capacity pales by comparison to that of satellite 

radio. As Mr. Balto demonstrated, the cost of that limited capacity is expensive: ‘‘an 

iPod with 1,000 songs would have approximately $1,000 worth of content or approxiVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00029 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\78881.TXT JACKIE
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17 Balto, at 6. 

mately six and a half years of the cost of an XM monthly service.’’ 17 Moreover, the 

iPod requires affirmative consumer action to access music; it lacks the programmed 

characteristics of satellite radio where music and information is pushed out to the 

listeners, exposing them to new content at the flip of a switch. Moreover, the diversity of programming and the capacity of the system which has enabled satellite 

radio to develop narrowly targeted niche programming lowers the cost of learning 

about new music. Listeners can go to the genre they’re interested in, programmed 

by a DJ who reflects their tastes, and hear an array of old and new content without 

commercial interruption. Thus, satellite radio becomes a complement for the iPod 

(assuming the iPod service provider has the desired song in its library). For example, having heard a new song on Sirius’s eclectic channel ‘‘Sirius Disorder,’’ the listener can download it to an MP3 player. Moreover, today, most MP3 players are 

used for listening to music. They do not generally deliver today programmed nonmusical live content: news, sports, talk and other entertainment, which constitutes 

a substantial part of the programming content on satellite, 40 percent in the case 

of Sirius. In addition, content from satellite radio is delivered in real time; the listener does not download then listen to it later whenever they want as with iPods 

and other MP3 players and satellite radio. Finally, the mere fact that both MP3 

players are mobile is not sufficient for these products to be substitutes. The merging 

parties could not with a straight face suggest that built-in CD players function as 

a substitute: the iPod is a similar device, only with greater storage capacity: it allows consumers to take music and other content they have already purchased and 

play it in their cars. 

The growth in subscribership and revenues for Sirius and XM, based on their SEC 

10–5 filings, reinforce the uniqueness of satellite radio’s product offerings. Between 

2005 and 2006, satellite radio subscribership rose from 9.3 million to 13.7 million— 

a nearly 50 percent increase. And combined revenue grew by nearly 100 percent. 

These data are not consistent with a market that competes with the burgeoning 

market for mobile digital listening devices. 

Internet Radio 

Internet radio suffers from many of the same problems as terrestrial radio. Much 

Internet radio is just a redistribution platform for terrestrial radio, which does not 

break the fundamental constraints of terrestrial radio. The business model still rests 

on advertising targeted, and content tailored, to the local market for which the terrestrial station holds a license. To the extent that some content is geographically 

specific (i.e., a home town baseball team) Internet distribution may make it accessible to out-of-market listeners, but it is difficult for the distributor to monetize that 

broader audience. As a locally based advertising model, aggregation of demand is 

not possible. Thus, programming that requires a large national audience will be beyond the scope of terrestrial radio rebroadcast over the Internet. 

Internet radio that is not based on the output of terrestrial broadcast radio (e.g., 

music services offered by cellular carriers) suffers several problems. Its quality is 

questionable and its price is high. And both types of Internet radio also have yet 

to solve the problem of getting into automobiles, which is the primary market for 

satellite radio. Even as a stationary alternative, the product is limited by the need 

for access to broadband, wireless or wireline. Thus, it suffers from bandwidth constraints and substantially higher equipment and service costs. Satellite radio, on the 

other hand, is ubiquitously available to every consumer at significantly lower 

monthly costs. 

As demonstrated above, the relevant product market for this merger is satellite 

radio itself. Thus, despite their contentions, the only alternative for XM is Sirius 

Radio; the only alternative for Sirius is XM. The merger is a merger to monopoly— 

a type of merger that is antithetical to the competition laws and perhaps the worst 

offense against the basic principle that competition is the consumer’s best friend. 

There is no circumstance more disturbing from the point of view of the antitrust 

laws and the Communications Act than a merger within a distinct product market 

that takes the number of competitors from two to one. That will be the result if regulatory and antitrust authorities accept the erroneous, overbroad market definition. 

The False Promise of Bank Shot Competition in Disciplining Prices 

If this merger is approved on the basis that different audio platforms are available, consumers will lose: the track record of intermodal competition disciplining 

anticompetitive abuse is poor at best. ‘‘Bank shot competition’’—the claim that partial or poor substitutes that are fundamentally different than the target product 

serve as competitors—has failed to protect consumers in similar situations. The reVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\78881.TXT JACKIE
27 

sult of relying on such competition in both merger and regulatory reviews has been 

rising prices and stagnation. 

Cable television provides an appropriate example. In the 1980s, Federal policymakers claimed that cable TV competed with over-the-air broadcasting. Based on 

that understanding, the FCC deregulated cable systems in communities with three 

or more broadcast signals. Cable rates subsequently skyrocketed. By the late 1980s, 

the failure of this intermodal competition to discipline cable pricing was so obvious 

that the FCC proposed to increase the number of over-the-air stations necessary to 

represent effective competition to six. Seeing the results of this failed policy, Congress re-regulated cable in the early 1990s, and intervened in the market to help 

DBS satellite compete against cable (another form of intermodal competition). 

In the decade after the Telecommunications Act of 1996, which largely deregulated cable rates, intermodal competition between cable and satellite failed to discipline cable rate increases. Average monthly cable bills have doubled since the 1996 

Act. In short, intermodal competition from neither over-the-air TV nor from digital 

satellite distribution has disciplined cable rates. The former had more limited channel capacity; the later had greater channel capacity. It did not matter. The empirical 

evidence from the cable market is clear. Only head-to-head competition of products 

within the relevant market delivers clear relief from anti-consumer, anti-competitive 

pricing. 

In the satellite radio service product space, we face a similar configuration of 

products. Congress, regulatory agencies and antitrust authorities should not be misled into believing that traditional broadcast radio, digital Internet distribution and 

mobile handheld devices, like iPods, that allow consumers to store and play music 

from their own collections or from online music sites, will discipline prices any more 

than broadcast television, downloadable videos, DVD players, Digital Video Recorders and direct broadcast satellite have disciplined cable prices. The contention that 

the purported substitutes will discipline prices is even more suspect when one considers that the cost of satellite radio service has increased since the products were 

launched several years ago despite the presence of other mobile radio distribution 

systems. Free terrestrial radio and iPods have been around for a while, but their 

existence has not prevented increases in satellite radio pricing practices. There is 

no reason to believe that it will do a better job if a satellite radio monopoly is allowed to come into existence. 

The merging parties argue that consumers will be better off with a benevolent 

monopolist than they would be with two competitors. In this ultra-short term view, 

competition is defined as wasteful, since redundant facilities lie unutilized. The monopolist can serve everyone while using fewer resources and the monopolist promises not to abuse the market power that would result. But without the stick of 

meaningful competition, the cost savings simply will not be passed through to the 

consumer. Indeed, the increase in market power will allow the post-merger monopoly to raise rather than lower prices. 

The merging parties promise, in the short-term, not to raise prices for the services 

that consumers now receive. It is a hollow promise that fails to address the real 

harms of the merger. Time-limited price freezes today for yesterday’s services fail 

to address the added costs to consumers over time that result when competition is 

absent. In addition, a short term price freeze does not compensate for the price declines that might otherwise occur if the two competitors continue to compete. In the 

absence of a merger, it is not clear why prices should not eventually fall below 

$12.95/month for existing services as increasing subscribership drives down costs. 

In addition, with the loss of two head-to-head competitors, consumers will suffer 

from the gradual price creep that will likely occur over time, as in the monopolistic 

cable industry. Gradual increases, though less noticeable, have a dramatic adverse 

impact on consumers over time. A five to 10 percent annual increase over a period 

of years takes a significant bite out of the consumer’s wallet, as any long-time cable 

subscriber will attest. 

Consumer Choice Denied 

XM and Sirius assert that a significant benefit of the merger is greater consumer 

choice. A careful analysis demonstrates that such choice is badly circumscribed, 

comes at a cost, and is insufficient to compensate for the loss in choice consumers 

have now: the ability to choose services from two competitors. 

First, XM and Sirius contend that eventually consumers will be able to receive 

content offered on both systems and in the short term, consumers will be offered 

some of the content offered on the other competitors system but unavailable from 

their current service. For example, subscribers currently able to get only the NFL 

or NLB channels will be able to purchase both. Note, however, that the purported 

increased choice will come at a cost. The merging parties do not claim to offer those 

28 

18 Charles Babington, ‘‘Radio Deal Could Face Technical Difficulties,’’ Washington Post, 

Mar. 19, 2007, at D1. 19The marginal production costs are certainly every low, if not zero, but we are told that the 

marginal transaction costs (i.e., customer acquisition costs) are high. However, it appears that 

this problem is a function of the bundling strategy. Having set such a high threshold price, the 

companies are forced to market aggressively to a much narrower market segment. 20See e.g., Sohn, supra note 9. 

additional channels at the same cost of existing services. The parties offered concession to hold prices near current levels not only does little more than freeze pricing 

for yesterday’s services, that promise does not apply to new packages that include 

the combined services of the two companies. In fact, it is very likely that the ‘‘merger benefits’’ of combining these offerings will require consumers to pay much more 

than $12.95/month to receive premium channels. It is also reasonable to expect that 

to get those premium channels, consumers would likely be required to ‘‘buythrough:’’ to receive the premium channels at additional cost, consumers may be required to first buy the large basic package. 

Second, despite XM and Sirius claims that channel capacity is not a limiting factor, significant concerns exist that to make those additional programming options 

available, the services will have to drop existing channels, including non-duplicative 

offerings, reducing consumers’ choice, or alternatively degrade audio quality.18

Channels with specific DJs consumers once enjoyed may be unavailable. In that 

case, there is little consumer benefit to the merger and substantial costs in terms 

of lost channel choice. And when dual platform receivers ultimately become available, enabling consumers to receive all channels from both providers, it is unclear 

what they’ll cost and whether the parties will offer them to consumers at reduced 

or no cost. 

Third, the merging parties assert that they’ll offer consumers greater choice by 

offering specialty tiers or give them the ability to opt-out of channels and deduct 

the cost of those channels from their bill. This choice, however, could be available 

today. But instead, consumers in the satellite radio space are afflicted by the very 

same pricing practices that afflict cable consumers. Not only are prices high, but 

also the consumer is offered only large bundles of channels over which they have 

no choice. Consumer choice and consumer sovereignty are denied. In a product market where the marginal production cost of adding subscribers is almost zero, the 

bundling strategy is largely anti-consumer.19

This merger promises to make matters worse, with large capacity systems joining 

to create larger consumer bundles at higher prices. The offer to give consumers 

greater pricing flexibility is not accompanied by promises that consumers won’t be 

forced to buy-through to get specialty bundles, nor by assurances that the ‘‘cost’’ deducted from consumers for ‘‘opt-out’’ channels will actually reflect the cost of the 

programming for that channel. The cost to Sirius of Howard Stern’s channel, which 

some listeners may find objectionable, is arguably higher than the cost of a music 

channel, where production costs are substantially lower. The merging parties’ concession not only fails to provide the real channel-by-channel choice consumers demand, it is unlikely to provide any meaningful cost benefits. 

The purported choice benefits simply do not compensate for the real choices consumers will lose: the choice between two head-to-head competitors. Today, consumers who want different options have the ability to switch providers, albeit at significant switching costs. But that possibility forces the two providers to continue innovating, improving their services, developing differentiating features like package 

flexibility, and competing on price. Because this is a unique product market, once 

the competition is eliminated, the primary driver of innovation and progress in both 

programming and technology—competition in the market—will be eliminated. Innovation will slow to the pace preferred by the monopolist. 

In addition, the merger harms independent content producers, DJs, artists and 

personalities who now have two competitors to play off one another when negotiating for carriage or ‘‘air-time.’’ As we have seen in cable, concentration in distribution reduces access for content producers. Proposals made by some that, as a condition of the merger, some capacity should be reserved for independent non-commercial channels 20 may promote limited content diversity, but it does not compensate 

for the loss of bargaining power that independent commercial content producers will 

suffer when faced with the market power of a single distributor. At the end of the 

day, the loss of choice for content producer translates into fewer choices and less 

program diversity for consumers. 

While the merging parties assert the benefit of the merger is greater consumer 

choice in channel programming offered by both parties, there has been little focus 

on the fact that it is the parties’ own practices that have denied consumers this 

29 

choice in the past. Despite requirements by the FCC and the terms of their own 

patent dispute settlement to develop and provide interoperable radios that would 

have allowed consumers to switch providers without switching equipment, the companies have failed to meet that commitment. Claims by XM and Sirius that they 

were required only to ‘‘develop’’ the radio, but not to take steps to ensure it was 

commercially available provides little comfort to consumers denied greater switching 

choice nor should it ease criticism that these parties sought to comply with only the 

narrowest interpretation of the commitment. Instead of promoting consumer choice, 

the merging parties have forced consumers to invest in equipment that works with 

just one service, and once so invested, their choice is reduced. Today, we are asked 

to recognize choice benefits of a merger between two parties who have made concerted decisions to deny consumers choice that would otherwise have been available. 

For policymakers inclined to accept the notion that consumers are better off with 

one rather than two satellite radio providers, we recommend that the spectrum occupied by one of the current licenses be divested and made available for other consumer services. If all the Nation needs is one satellite radio company, why not auction half of the XM-Sirius spectrum for other commercial uses? Surely a free-market 

auction would enrich the Federal Treasury with plenty of money to compensate satellite radio subscribers for any sunk equipment costs, offer consumers new 

broadband or other wireless services, and still enable Sirius and XM to combine 

their best offerings with substantial channel capacity. 

Conclusion 

A satellite radio merger to monopoly is about an avalanche of mergers. There was 

a key moment a decade ago when the Department of Justice decided that a large 

monopolist is no worse then two smaller monopolists and allowed the Bell Atlantic/ 

NYNEX merger to go forward. That decision opened the door to a wave of mergers 

that doomed head-to-head competition in telecommunications. The old telephone monopoly was recreated as two huge geographically distinct monopolies that rarely, if 

ever, compete. 

A satellite radio merger to monopoly will perform a similar bellwether function. 

If the agencies with oversight adopt a loose definition of products and markets and 

allow a merger to monopoly on the basis of intermodal competition, then a tsunami 

of mergers could ripple through the digital space at the worst possible moment. The 

firms that have declared their undying hostility to the open flow of products in the 

digital economy (broadcasters, telephone/cellular companies, cable companies), will 

now be empowered to capture and stifle the alternatives, under the premise that 

every media and telecommunications product competes with all others and that new 

technologies and services will come along to protect the consumer in any case. That 

relief, however, will be slow and insufficient because the competitive core of the digital economy will have been damaged and the critical terrain of the digital economy 

will be controlled by entities that have the same anti-competitive, anti-consumer objectives as the merging parties in this case. 

We urge the Congress to tell the FCC and antitrust authorities to put the brakes 

on the proposed XM-Sirius merger unless and until significant questions on competition and consumer impacts are fully addressed and satisfactorily answered. It is 

time to hold the line against the greatest threat to a competitive and diverse media: 

mergers that concentrate ownership in too few hands. 

The CHAIRMAN. I thank you very much, Mr. Kimmelman. And 

now may I recognize Ms. Sohn. 

STATEMENT OF GIGI B. SOHN, PRESIDENT AND CO-FOUNDER, 

PUBLIC KNOWLEDGE 

Ms. SOHN. Thank you, Chairman Inouye, Vice Chairman Stevens, and other members of the Committee for inviting me here 

today. The proposed merger invites a dilemma for public interest 

advocates. On one hand, the only two providers of satellite radio 

services which have vigorously competed over the past 5 years are 

seeking to consolidate, raising questions about the impact on prices 

and choice for consumers. On the other hand, this competition has 

left both companies weakened in a world where other multichannel 

music entertainment and information options are increasingly popular. 

30 

The salient question is this: How will consumers be better off? 

I believe that if the merger passes antitrust scrutiny, one strong 

company that is subject to conditions that protect consumer choice, 

promotes diverse programming and keep prices in check 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 multichannel 

music services, it is unclear how consumers would react if satellite 

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

to spend their money on satellite radio would be helpful in making 

that determination. 

And I must say, I don’t agree with my friend and colleague’s 

comparison of this merger to the cable industry looking at broadcasting in 1984, because a lot of people get cable and DBS to get 

their over-the-air stations. They see it as a necessary complement. 

It is not the case here. The markets are very different, so I just 

caution the Committee that that 1984 comparison has some holes 

in it. 

Even if the merger survives initial antitrust scrutiny, 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 tiered program choices. 

For example, the company can make available a music or sports 

tier, which would cost less than subscribing to the entire service. 

Second, the new company should ensure programming diversity by 

making available 5 percent of its capacity for noncommercial programming over which it has no editorial control. This would resemble a requirement for DBS providers. Third, the new company 

should be prohibited from raising the price for its new consolidated 

programming package for 3 years. 

In addition, policymakers should determine whether the new 

company should divest all or some of its extra spectrum it will have 

after the merger. There are several reasons why we believe that a 

properly conditioned merger would be in the public interest. First, 

consistent reports 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 the underserved. A combined subscriber base would allow the new company 

to distribute the fixed cost of the satellite system across a larger 

consumer base, reducing cost per subscriber and enabling new programming and lower prices. Second, consumers would gain access 

to channels they could not receive unless they subscribe to both 

services. Third, eliminating new and diverse programming. 

I’ll conclude by raising two other concerns. First, Public Knowledge opposes any merger condition involving limits on the ability 

of consumers to record satellite radio services. This would amount 

to repealing the Home Audio Programming Act which specifically 

protects a consumer’s ability to record digital music. Two, local programming. Broadcasters opposition to this merger is hypocritical 

given their own regulatory efforts to consolidate. And I must say, 

it’s interesting how the broadcasters always bring all of the folks 

who have 30 stations and 20 stations. I just can’t believe that large 

group owners like Clear Channel with 1,200 stations do not comVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\78881.TXT JACKIE
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pete nationally. You have to look at syndicated programming to see 

whether there is an integration of demands. You don’t look at the 

guy that owns 30 stations, you look at the people that own 1,200 

and 1,300 and 1,400 stations, and with content and other regulatory restrictions, is itself anticompetitive. There is no reason why 

today any media service should have a government granted monopoly over local programming. 

Senator Lautenberg, you asked about what the public interest is. 

The public interest is in more local programming, not less. And if 

you allow satellite radio to provide local programming you’ll have 

that. Regardless of the current satellite radio company’s intent to 

provide local service, others should not be barred from doing so. 

While broadcasters talk about a ‘‘level playing field’’ their supported programming limits an opposition to paying the same performance fees to artists that all other radio services pay, and reveal 

the industry’s desire for government sanctioned competitive advantage. I look forward to your questions. 

[The prepared statement of Ms. Sohn follows:] 

PREPARED STATEMENT OF GIGI B. SOHN, PRESIDENT AND CO-FOUNDER, 

PUBLIC KNOWLEDGE

Chairman Inouye, Vice Chairman Stevens, and other members of the Committee, 

my name is Gigi B. Sohn. I am the President of Public Knowledge, a nonprofit public interest organization that addresses the public’s stake in the convergence of communications policy and intellectual property law. I want to thank the Committee for 

inviting me to testify on the proposed merger of XM Satellite Radio and Sirius Satellite Radio. 

Introduction and Summary 

The merger of XM Satellite Radio and Sirius Satellite Radio presents a dilemma 

for public interest advocates. On the one hand, the only two providers of radio services via satellite, who have vigorously competed over the past five and a half years, 

are seeking to consolidate, immediately 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 new and better programming, leaving both competitors weakened in a world where Internet radio, HD radio, cable radio and other multichannel 

music, entertainment and information services have become increasingly popular. 

Some will say that XM and Sirius’ current financial state is a problem of their 

own devising—that a service that was intended largely to provide an alternative for 

the strict playlists and over-commercialization of broadcast radio spent lavishly and 

foolishly on radio personalities and major league sports. They will also say that allowing a merger is a government ‘‘bail-out.’’ I agree with both of these statements. 

But I do not believe that that is where the focus should be. 

Instead, the salient question for policymakers is this: if this merger is simply denied, will consumers be better off? Given the financial state of both companies, the 

slowing growth of their customer base and the increasing competition in the marketplace, it appears likely that in the absence of a merger, both services will continue 

to limp along instead of investing in new and diverse programming. Might it not 

be better for consumers to permit the merger under conditions that provide expanded programming and pricing choice, along with temporary measures to keep 

prices in check? After a great deal of discussion with my public interest colleagues, 

former regulators and antitrust experts, I believe that the latter is the best course. 

Thus, the XM and Sirius Satellite radio merger should be approved only if it is 

subject to the following three conditions: 

• the new company makes available pricing choices such as tiered programming. 

• the new company makes 5 percent of its capacity available to non-commercial 

educational and informational programming over which it has no editorial control. 

• the new company agrees not to raise prices for its combined programming package (as opposed to each individual company’s current programming package) for 

3 years after the merger is approved. 

32 

1 A former official of the Department of Justice’s Antitrust Division apparently agrees with 

this assessment. See Statement of Charles E. Biggio, Wilson, Sonsini, Goodrich & Rosati, PC; 

Before the Antitrust Task Force, Committee on the Judiciary, U.S. House of Representatives 

Concerning Competition and the Future of Digital Music, February 28, 2007. (‘‘Right now, we 

do not have all the facts necessary to determine the legality of the merger’’). 2Moreover, it appears that Sirius and XM may soon no longer be the only satellite radio providers. Slacker, a new service, is slated to begin delivering music to consumers via satellite in 

the near future. See, e.g., Associated Press, Start-Up Launches ‘Personal Radio’ Service, Mar. 

14, 2007, available at http://online.wsj.com/article/SB117388069334336810.html. 3See, e.g., David Bank & Ryan Vineyard, Wedding Bells Are Ringing For XMSR And SIRI, 

RBC Capital Markets Industry Comment: Broadcasting and Cable TV, Feb. 20, 2007, 1, 4. 4 A number of mobile carriers are currently providing streaming audio, video, and data to the 

mobile phone handsets they sell, generally on an exclusive basis between the wireless and content providers. This content is provided to the subscriber for a fee, typically in addition to wireless data fees, as these services are usually IP-based. Verizon’s V-Cast provides entertainment, 

sports, news, and weather video clips, music downloads, and mobile data; Verizon is also employing new MediaFLO technology to directly distribute content to handsets, apart from their 

data-based network. Clear Channel and MobiTV are exclusive providers of streaming audio and 

video content to Cingular subscribers. Sprint Mobile currently provides a number of streaming 

radio channels, from Music Choice, Rhapsody, Sprint Radio, and Sirius; it is also aiming to proTwo other points warrant mention here. The first is our strong opposition to any 

merger condition involving limitations on the ability of consumers to record these 

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. 

The second is to urge Congress and the FCC to permit satellite radio broadcasters 

to do more, and not less, local programming. Broadcasters’ opposition to this merger 

and to satellite radio’s provision of local traffic, weather and emergency information 

is not only incredibly hypocritical given their own current regulatory efforts to consolidate, but it is also anticompetitive in its own right. Even assuming that broadcasters take seriously their statutory duty to serve local communities with programming that serves local needs (and not just traffic and weather), there is no reason 

why, in 2007, any media service should have a government-granted monopoly over 

local programming. 

Whether the Proposed Merger Would Survive Antitrust Scrutiny is a Close 

Call and Warrants Thorough Analysis 

Let me say at the outset that I am not an antitrust expert. Luckily, I have several 

colleagues who are. After conferring with them, I can only conclude that the antitrust questions raised here are very complex and ultimately depend on information 

to which Public Knowledge does not have access.1

Take, for instance, the critical question of what would be the relevant market. If 

one views the relevant product market solely as satellite delivered radio service, the 

proposed transaction could be characterized as a ‘‘merger to monopoly,’’ which would 

strongly suggest outright rejection. Some of my public interest and academic colleagues, whom I respect enormously, do just that. For instance, the satellite radio 

broadcasters are the only services that provide listeners with certain programming, 

available at both high quality and from a mobile device. The satellite services also 

provide the only continuous national market for certain types of broadcasting. For 

example, only on satellite radio can a New York Mets baseball fan listen to the 

team’s baseball games anywhere in the Nation, or even as one drives from state to 

state. 

On the other hand, if the market is defined more broadly to include a wide variety 

of radio, mobile, and multi-channel music services, a regulator might reach a very 

different result. Indeed, XM and Sirius’ services overlap with and have effects on 

several different services (including video, if you include their feeds of cable shows). 

Competitors in this broader market would include over-the-air broadcast and HD 

radio, Internet radio services, cable (and DBS) radio, and wireless phone music and 

services like Sprint Radio, MobiTV, and V-Cast, as well as podcasts that can be 

downloaded onto MP3 players.2

A more broadly-defined market would include all of the services to which consumers would readily turn if satellite radio prices were raised. Anecdotal evidence 

suggests that there is no shortage of substitutes.3 Still, we cannot ignore the fact 

that there are real differences between satellite radio and its competitors. 

For instance, an audiophile colleague of mine is puzzled over my love of satellite 

radio because he receives all the new music he wants (for free) from Internet radio. 

In addition to providing highly diverse and specialized programming, Internet radio 

is becoming more mobile, and as a result is becoming a viable competitor to satellite 

radio.4 However, wireless services still may lack the higher-quality sound of satellite 

33 

vide more competition for high-speed data and competitive video streaming with WiMax technology. 5See, e.g., Eliot Van Buskirk, Royalty Hike Panics Webcasters, Wired News, Mar. 6, 2007, 

http://www.wired.com/news/culture/music/0,72879-0.html. 6 As evidenced by its appearance here today and its strong opposition to the merger, there 

is little doubt that the broadcast industry views satellite radio as a substitute. 7 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394 (1956). Although each 

of these products differs in the technical and legal details of how a user receives audio content, 

the various products are still competitors to the extent that consumers could migrate from one 

to another due to a change in price. 8One analyst argues that if XM and Sirius did constitute an entire market, there should be 

evidence that they are engaging in oligopoly-like behavior, and reaping similar profits. The fact 

that they are both losing money suggests otherwise. Blair Levin, Rebecca Arbogast, & David 

Kaut, XM-Sirius Review: Government Approval Close Call But More Likely Than Not, Stifel 

Nicolaus Telecom, Media & Tech Regulatory, Feb. 20, 2007. 9 Before DBS providers were required to carry all local stations if they carried one such station, many rural residents would subscribe to get access to television of any kind, whether local 

or not. 

radio, and recent, drastic increases in the already-high webcasting royalty rates may 

drive a lot of Internet radio services out of business.5 Podcasts, which many satellite 

consumers may consider an easy substitute for satellite programming, are provided 

via a ‘‘pull’’ technology, where the consumer picks and chooses content. In contrast, 

satellite radio is a ‘‘push’’ technology in which the consumer may receive new content without specifically selecting it. And while broadcast radio is becoming a clear 

satellite competitor with multi-channel and some commercial-free HD services, it is 

a local service that still hews to strict music playlists and is largely advertiser supported.6 Of course, a product needn’t be identical to be substitutable.7 While intuitively it would seem that at least some of these competitors could act as substitutes, the important part of this question is not whether consumers can conceivably switch, but if they will, given the switching costs. Evidence of past pricing behavior 8 and data on how and why consumers choose to spend their money on satellite radio would be most helpful to answer this question. 

In the end, whether or not the merger is approved should depend upon its effects 

for consumers and for the market. If, for instance, the merger increases net efficiencies through the sharing of expensive infrastructure, or if the merger prevents 

one company’s assets from being lost altogether, then these factors would favor approval. We look forward to the antitrust authorities’ thorough analysis of the merger’s impact on consumers. 

The Failed 2002 Merger of DIRECTV and Echostar Does Not Provide a 

Basis for Denying the Merger of XM and Sirius 

Some argue that this proposed merger should be denied based on its similarity 

to the failed 2002 merger of the Direct Broadcast Satellite providers Echostar and 

DIRECTV. But there are significant differences between the two mergers, as well 

as lessons from the 2002 merger that caution a different result here. 

The foremost difference between the two mergers is that consumers’ options for 

both audio programming and multichannel video programming have changed drastically over the past 5 years. Just 5 years ago, nobody had an iPod jack in their 

car; cellular phone companies did not provide mobile music services; and WiMax 

and other mobile Internet services were no more than gleams in technologists’ eyes. 

Similarly, in 2002 neither telephone companies nor webcasters were providing any 

significant multichannel video services. Given the changes in the multi-channel 

video market, I am not certain that the Echostar/DIRECTV merger would be denied 

today. 

Second, there are important differences between multichannel video and audio 

services. Most important among these is that many, if not most, subscribers to cable 

and DBS buy these services to get better (or any) local TV reception.9 Thus, ‘‘free’’ 

over-the-air TV has had little effect on the price of multichannel video services, because consumers do not see one as a replacement for the other, but rather see the 

multichannel services as a means to receive the free services. This is not the case 

with multichannel audio services. With a handful of exceptions, local radio stations 

are not carried on XM and Sirius, and consumers only subscribe to those services 

because they are willing to pay for content they believe that over-the-air radio does 

not carry. However, should satellite radio prices rise or competitors such as overthe-air radio provide cheaper and comparable content, there would be much less of 

a reason for consumers to continue to subscribe to XM or Sirius. 

Finally, it could be fairly argued that denying the Echostar/DIRECTV merger did 

not benefit consumers. Supporters of that merger argued that one strong satellite 

TV company would provide better competition to incumbent cable than two weak 

34 

10See, e.g., Craig Moffett, XMSR and SIRI: Where to from here? Bernstein Research, Feb. 20, 

2007, 8–13 (showing projected losses and declining net subscriber growth for both companies). 

See also Richard Siklos and Andrew Ross Sorkin, Merger Would End Satellite Radio’s Rivalry, 

N.Y. TIMES, available at http://www.nytimes.com/2007/02/20/business/media/20radio.html 

(noting combined $6 billion in losses and slower-than-expected growth). One commentator has 

surmised that many consumers have hesitated to subscribe to satellite radio services ‘‘because 

they didn’t know which company would survive.’’ James Surowiecki, Satellite Sisters, THE NEW

YORKER, March 19, 2007 11See, Suroweicki, supra note 10. 

companies. However, at the behest of News Corporation, which sought to purchase 

DIRECTV, the merger was denied. As a result, cable prices have continued to go 

up, and two separate, weak DBS companies lack the capacity to provide a competitive broadband service, which is essential to compete with cable. Nor did the DBS 

companies have the resources to bid successfully for new Advanced Wireless Services spectrum, which might have given them adequate broadband capacity. 

I see parallels to the DBS merger here—one strong satellite radio company will 

be able to push radio broadcasters to provide better, more diverse programming and 

fewer commercials, particularly as broadcasters provide multiple HD radio streams. 

This competition could be even stronger if satellite radio providers are permitted to 

do more local programming, which they are currently prohibited from providing except in narrow circumstances. But two weak companies are unlikely to provide any 

competitive or political pressure on broadcasters, which goes a long way to explaining that industry’s opposition to the merger. 

The Proposed Merger Would be in the Public Interest if it is Subject to 

Conditions Which Promote Diversity, Preserve Consumer Choice and 

Keep Prices in Check 

Even if the merger survives initial antitrust scrutiny, significant competitive concerns remain. Therefore, the public interest would be served only by permitting the 

merger subject to conditions that promote diversity, preserve consumer choice and 

keep prices in check. 

I reach this conclusion for several reasons. First, over the past several years, both 

companies have consistently lost money, and subscriber growth has slowed,10 which 

makes it less likely that they will take a chance on alternative programming or programming provided to under-served communities. For example, in 2005 XM dropped 

almost all of its world music channels, including one channel devoted entirely to African music. Around the same time it dropped its alternative Spanish music programming, opting for more popular Spanish fare. The desire to attract the largest 

number of listeners and the high fixed costs of operating a satellite service will 

make it difficult for each service, with its relatively small subscriber base, to take 

chances on alternative programming and/or lower prices. Combining the subscriber 

base of the two companies would allow the new entity to expand the diversity of 

its programming to better serve niche preferences of the larger base. Increased program diversity would not only benefit satellite radio customers, it would likely encourage competitors such as broadcast radio to provide more diverse programming.11

Second, consumers would be served by gaining access to channels that they could 

not receive unless they subscribed to both services. No longer would a consumer 

have to choose between Major League Baseball and the National Football League, 

Martha Stewart and Oprah or National Public Radio and XM Public Radio (which 

features the still-popular former NPR personality Bob Edwards). Moreover, to the 

extent that the new company will eliminate duplicative channels, there will be more 

capacity for new and diverse programming (which could even include video programming). In addition, as discussed below, we would urge the FCC to permit the new 

company to provide increased local programming, including news and public affairs, 

which would directly compete with over-the-air broadcast radio. 

However, the magnitude of this merger indicates that it will increase market concentration to some extent. Existing satellite subscribers may have significant 

switching costs to other services, and will certainly have no perfect substitutes. In 

order to ensure that the efficiencies from the merger will in fact result in greater 

program diversity, increased consumer choice, and better pricing, the merger should 

only be approved subject to the following three conditions: 

• Consumer Choice. The new company should make available to its customers 

tiered program choices. For example, the company could make a music tier or 

a sports tier available to consumers, which would cost less than subscribing to 

the entire service. 

• Non-commercial Set-Aside. The new company should make available 5 percent 

of its capacity for noncommercial educational and informational programming 

35 

12 47 U.S.C. § 335(b)(1). 13 Ever since Mr. Karmazin promised that the combined company would not raise prices for 

its service at a February 28 hearing before the House Antitrust Task Force, questions have been 

raised by FCC Chairman Martin and others about exactly what service would be encompassed 

in the proposed price freeze. Stephen Labaton, FCC Chief Questioning Radio Deal, N.Y. TIMES, 

Mar. 7, 2007, available at http://select.nytimes.com/search/restricted/article?res=F10816FB3E 

550C748CDDAA0894DF404 482. 14See Atlantic Recording Corp. v. XM Satellite Radio, Inc., No. 06 Civ. 3733 (S.D.N.Y. 

Jan. 19, 2007). 15Platform Equality and Remedies for Rights Holders in Music (PERFORM) Act of 2007, S. 

256, 110th Cong. (2007). 

over which it will have no editorial control. There is precedent for this kind of 

non-commercial set-aside. Section 335 of the Communications Act requires a Direct Broadcast Satellite provider to ‘‘reserve a portion of its channel capacity, 

equal to not less than 4 percent nor more than 7 percent, exclusively for noncommercial programming of an educational or informational nature.’’ 12 This 

would ensure a diversity of programming choices and would grant access to a 

national service to programmers who normally would not have any. As with the 

DBS set-aside, the new company could not fill it with programmers already on 

its system, and no non-commercial programmer would be able to control more 

than one of these channels. 

• Three-Year Freeze on Price Increases. Because of the expected gains from the 

merger and because competing services are still nascent, the new company 

should be prohibited from raising prices for 3 years after the merger is approved. This price freeze should apply to the combined programming package 

of the new entity, and not just to the current service of each individual satellite 

radio provider.13

In addition, the FCC should determine whether the new company should divest 

all or some of the extra 12.5 MHz of spectrum that it will have as a result of the 

merger. If, as Sirius CEO (and presumptive CEO of the new company) Mel 

Karmazin has testified, the new company will not be providing local programming 

even if it is given the authority to do so, there may be no reason for the new company to control double the spectrum that the individual companies have today. 

There is a belief among some of that if this merger is approved, then no other 

merger involving digital media will ever be denied. But that need not be the case 

if the antitrust authorities and the FCC are clear that the merger is being approved 

based upon very specific facts and circumstances. This merger involves a national 

service that has become a luxury item for less than 5 percent of Americans. As such, 

approval should have no impact on any questions about any proposed consolidation 

of local broadcasters. 

This Merger Should Not Be Conditioned on any Limits on Consumers’ 

Right to Record Satellite Radio 

For the past 18 months, the recording industry and XM Satellite Radio have been 

engaged in a battle over whether XM should pay an extra licensing fee for selling 

a receiver that allows consumers to record blocks of programming and disaggregate 

it into individual songs. In the alternative, the recording industry has sought to 

have XM embed technological protection measures that would prohibit this activity. 

This dispute is the subject of an ongoing lawsuit in the Second Circuit 14 and pending legislation in the Senate.15

Public Knowledge is concerned that the recording industry will attempt to use the 

merger to limit consumers’ ability to record satellite radio transmissions. Consumers 

have been permitted to record radio transmissions since the invention of the tape 

player, and that ability is specifically protected under the Audio Home Recording 

Act, 17 U.S.C. § 1001 et seq., which prohibits any copyright infringement action: 

. . . based on the manufacture, importation, or distribution of a digital audio 

recording device, a digital audio recording medium, an analog recording device, 

or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings. 

(Emphasis added.) 

The record companies have questioned whether the Audio Home Recording Act is 

in need of revision and repeal in light of changing technologies. While this might 

be a legitimate question, the place to ask that question is before Congress, not in 

the context of a merger. Moreover, to the extent that such a condition might be 

sought at the FCC, the Federal courts have already ruled that the Commission has 

36 

16 Am. Library Assoc. v. FCC, 406 F.3d 689 (D.C. Cir. 2005). 17Statement of David K. Rehr, President and CEO, National Association of Broadcasters, 

Hearing on Competition and the Future of Digital Music, U.S. House of Representatives, Committee on the Judiciary, Antitrust Task Force, February 28, 2007. 18See Gigi Sohn, From the Unmitigated Gall Department, Public Knowledge Policy Blog, 

http://www.publicknowledge.org/node/836. For example, despite its alleged desire for a ‘‘level 

playing field,’’ the NAB is actively opposing any and all efforts to require their members to pay 

the same ‘‘performance’’ fees to artists that webcasters and satellite radio pays, going so far as 

to call that fee a ‘‘performance tax.’’ See http://www.publicknowledge.org/node/850. 19See, e.g., Shira Ovide, Clear Channel’s Profit Declines 54%, WALL STREET JOURNAL, 1FEB. 

24, 2007 AT A6; ASSOCIATED PRESS, Earnings Preview: CBS Corp, available at http:// 

www.chron.com/disp/story.mpl/ap/fn/4583381.html, Feb. 26, 2007 (noting losses in the ‘‘troubled radio unit,’’ apparently caused by ‘‘stagnation in the overall radio market’’); Comments of 

the National Association of Broadcasters, FCC Quadrennial Ownership Review, MB Docket No. 

06–121 (Filed Oct. 23, 2006) 29–35 available at http://www.nab.org/Content/ContentGroups/ 

Legal/Filings/2006/QuadrennialOwnership2006Final.pdf (‘‘In sum, the combination of competition from cable, satellite, the Internet and other digital technologies is forcing broadcasters to 

fight even harder in the advertising marketplace.’’). 20See Sarah McBride, Four XM Music Stations Will Start Running Ads, WALL STREET JOUR- NAL, Mar. 8, 2006, available at http://online.wsj.com/article/SB114178705518792190-email 

.html; Clear Channel’s New Plan for Satellite Radio: Make it Worse, TECHDIRT, Mar. 8, 2006, 

http://www.techdirt.com/articles/20060308/0836259.shtml. 21See the Local Emergency Radio Service Act of 2007, H.R. 983, 110th Cong. (2007). 22 A condition limiting local programming via satellite radio should not be imposed even 

though Mr. Karmazin has testified that the new company would have no interest in providing 

such programming. Such a condition would limit the ability of any future satellite radio service 

or any entity that might in the future purchase the new company to provide local programming, 

giving broadcasters a ‘‘state-sanctioned monopoly control’’ over local programming. 

no power to require particular technological design mandates in the absence of express Congressional authority.16 Nor does the FCC have the power to require XM 

to pay a licensing fee in exchange for the ability to sell such receivers. 

The Broadcast Industry’s Opposition to the Merger is Hypocritical and 

Anticompetitive 

Claiming that it ‘‘fully supports competition on a level playing field,’’ the National 

Association of Broadcasters opposes this merger for a variety of reasons, including 

that it would result in ‘‘state-sanctioned, monopoly control over the 25 MHz of spectrum allocated to satellite radio service,’’ that it ‘‘will not provide sufficient . . . public interest benefits,’’ and that it is ‘‘a government bailout for questionable business 

decisions.’’ 17

There are many delicious ironies in the NAB’s opposition to this merger,18 but 

perhaps the most salient to this discussion is that as we speak, the broadcast industry is seeking FCC relief in order to consolidate. And perhaps the primary rationale 

for requesting that relief is the supposedly uncertain and deteriorating financial 

state of the broadcast industry.19

The Committee should take the NAB’s opposition for what it is worth—the last 

in a very long history of broadcaster efforts to place regulatory roadblocks in the 

path of the satellite broadcast industry. This history started about 15 years ago 

when broadcasters tried to convince the FCC to impose content and other public interest obligations on satellite radio. It has continued with refusals by at least two 

broadcast groups to carry satellite radio advertising and by another broadcast group 

to insist that satellite radio carry advertisements when it programs channels on satellite radio.20 Over the past several years, the broadcast industry has concentrated 

its efforts to constrain satellite radio at the FCC and in Congress through attempts 

to limit satellite radio from providing local programming, including weather, traffic 

and emergency information.21

It is no secret that one of the broadcast industry’s main goals in opposing this 

merger is to obtain conditions that would, if not entirely prohibit satellite radio from 

providing local programming, prevent any increase in that programming. In other 

words, in order to save local radio, the NAB seeks to have the government prohibit 

more local radio. 

Any conditions on the merger that would limit satellite radio from providing local 

programming would be profoundly anticompetitive and should be rejected. Setting 

aside the question of whether ‘‘local’’ broadcasters take seriously their responsibility 

of serving their local communities with news and public affairs programming (not 

just traffic and weather), there is no rationale for shielding broadcasters from competing for local viewers and listeners. Indeed, rather than limiting such competition, 

Congress and/or the FCC should permit satellite radio and other national services 

to provide more, not less, local programming.22

37 

Conclusion 

The proposed merger of XM Satellite Radio and Sirius Satellite Radio raises complex antitrust questions. If these questions are resolved in favor of the merger, Public Knowledge believes that with conditions that protect consumer choice, promote 

diverse programming and keep prices in check, the transaction is in the public interest. I would like to thank the Committee again for inviting me to testify and I look 

forward to any questions you might have. 

The CHAIRMAN. I thank you very much, Ms. Sohn. Mr. Bank. 

STATEMENT OF DAVID BANK, MANAGING DIRECTOR, 

MEDIA AND BROADCASTING EQUITY RESEARCH ANALYST, 

RBC CAPITAL MARKETS 

Mr. BANK. Thank you. Good morning, Senator Inouye, Vice 

Chairman Stevens, members of the Committee. My name is David 

Bank. And I am the managing director—equity research for RBC 

Capital Markets, responsible for coverage of both the satellite radio 

and traditional radio broadcasting industries. XM Satellite Radio 

and Sirius currently have combined enterprise value including debt 

and equity securities of approximately $11 billion traded in the 

public markets. I hope to put the proposed XM and Sirius merger 

into context with respect to the issues that these capital markets 

are focused on. 

Of these issues, the first and foremost would be the potential 

synergies and subsequent savings that we believe are possible in 

an XM and Sirius merger. We estimate the value of these synergies 

to be somewhere between $5 billion and $6 billion. While it is not 

etched in stone, the extent to which the combined entity might 

pass savings and value creation on to consumers, we believe that 

there are three primary constituencies that stand to benefit financially from this $5 to $6 billion of savings. 

The first are the employees of each company as the viability of 

the combined entity becomes stronger with greater long-term visibility. The second are the customers and consumers, which could 

probably benefit from greater innovation, more flexibility and pricing, and a more diverse selection of content. And third are the 

shareholders who will see value creation from increased long-term 

earnings potential. 

Synergies would likely arise in two fashions. The first is rather 

straightforward, and it will stem from simply eliminating redundant network components, marketing costs and operating support 

functions. 

The second is ultimately more difficult to quantify. It stems from 

a potential reduction in leverage that content providers such as 

sports, entertainment and news services, as well as automotive 

manufacturers previously exercised, when XM and Sirius were bidding separately for initial content and distribution contracts. These 

costs extracted from XM and Sirius in the form of fixed payments, 

variable revenue share payments and subsidies have been significant burdens, especially in light of slackening demand. 

At the time most of the original agreements were signed, satellite 

radio technology was still in its infancy relative to consumer acceptance. Sirius and XM were very aggressively bidding against 

each other for content and distribution deals that were key to longterm survival against what we believe is a broader competitive 

backdrop that includes standard and HD terrestrial radio, iPods, 

38 

entertainment over cell phone, and Internet radio. In essence, the 

industry was competing against itself as well as these alternative 

distribution platforms. In addition, the demand for satellite radio 

subscriptions, particularly on the retail or non-automotive side, 

was expected to be more robust than it ultimately turned out to be. 

As an illustration of this change in demand, look at the picture 

against a backdrop of higher fixed costs. While our current expectation for year end 2010 subscribers for the combined industry is approximately 26 million subscribers, our expectation for that figure 

when we made the estimate two-and-a-half years ago was closer to 

33 million. So the expectation went from 33 million to 26 million 

by 2010. 

Now, synergies are not going to occur overnight but rather over 

a period of years, with more expected to be realized in the latter 

half of the initial 5-year period after merger, because most agreements that the auto manufacturers and content providers have entered into are relatively long term. Most will not expire until at 

least 2011. In addition, in our view, the combined company will 

likely need to maintain two separate network operating architectures for several years as it continues to service existing customers. 

The itemized details of these synergies by line item can be seen 

in our report published January 12th, 2007, but the bottom line is 

according to our estimates, these synergies could amount to value 

creation for XM and Sirius stockholders of approximately $8 and 

$1.73 per share respectively at the exchange ratios set forth in the 

XM and Sirius merger agreement. These amounts would correspond to premiums on the current equity prices of XM and Sirius 

of approximately 66 percent and 60 percent respectively, at Monday’s closing prices, and this is probably the major focus of the capital markets. The combined company will almost certainly have 

greater resources to invest in technological innovation, leading to 

a more rapid development of improved products than either company would on a stand-alone basis. 

As for implementation, that will be up to the management of the 

combined companies. We believe that the satellite industry is a viable one with or without this merger. However, we would note that 

as competition is increasing for the mobile entertainment consumer, as illustrated by the evolution of the iPod to the iPhone, 

broadcast audio and video over cell phones, MP3 integration into 

the automobile, broader adoption of over-the-air HD radio, we believe the industry will be in a much healthier and stronger position 

should the merger occur. In conclusion, I would like to note that 

RBC Capital Markets has at no time served as a financial adviser 

to either XM or Sirius. Thank you. 

[The prepared statement of Mr. Bank follows:] 

PREPARED STATEMENT OF DAVID BANK, MANAGING DIRECTOR, MEDIA AND

BROADCASTING EQUITY RESEARCH ANALYST, RBC CAPITAL MARKETS

Good morning Members of the Committee and guests. 

My name is David Bank. I am the media and broadcasting equity research analyst for RBC Capital Markets responsible for coverage of both the satellite and traditional radio broadcasting Industries. 

XM Satellite Radio and Sirius Satellite currently have a combined enterprise 

value including both debt and equity securities of approximately $11 billion and I 

39 

hope to put the proposed XM and Sirius Merger into context with respect to issues 

that the capital markets are focused on. 

Of these issues, the first and foremost of them would be the potential synergies 

and subsequent savings that we believe are possible in an XM and Sirius Merger. 

We estimate the value of these synergies to be somewhere between $5 billion and 

$6 billion dollars. 

While it is unclear to us how, if at all, the combined entity might pass on savings 

and value creation to consumers, there are three primary constituencies that stand 

to benefit from the $5–$6 billion of savings financially: (1) the employees of each 

of the companies as the viability of the combined entity becomes stronger, (2) the 

customers which could potentially benefit from greater innovation, more flexibility 

in pricing and a more diverse selection of content and (3) shareholders, who will see 

value creation from increased long-term earnings potential. 

Synergies would likely arise in two fashions. The first is rather straightforward 

and will stem from simply eliminating redundant network components, marketing 

costs and operating support functions. 

The second is ultimately more difficult to quantify, but a clear driver, nonetheless. 

It stems from a potential reduction in leverage that content providers (i.e., sports, 

entertainment and news service) as well as automotive manufacturers previously 

exercised when XM and Sirius were bidding separately for content and distribution 

contracts. These costs, extracted from XM and Sirius in the form of fixed payments, 

variable revenue share payments and subsidies, have been significant. 

At the time most of the original agreements were signed, satellite radio technology was still in its infancy relative to consumer acceptance. Sirius and XM were 

very aggressively bidding against each other for content and distribution deals that 

were thought to be key to long-term survival against a broader competitive backdrop 

that included standard and HD terrestrial radio, iPods, entertainment over cell 

phones and Internet radio. In essence the industry was competing against itself, as 

well as alternative distribution platforms. In addition, the demand for satellite radio 

subscriptions, particularly on the retail side, was expected to be more robust than 

it ultimately turned out to be. 

As an illustration of the change in the demand picture against a backdrop of higher fixed-costs, while our current expectation for year end 2010 subscribers for the 

combined industry is approximately 26 million, our expectation for that figure in 

late 2004 and early 2005 when we first published estimates for year end 2010 subscribers was closer to 33 million, a discount of approximately 20 percent. 

Synergies will not occur overnight, but rather over a period of years—with more 

expected to be realized in the later half of the initial 5 year period after a merger 

because most agreements that the auto manufacturers and content providers have 

entered into are relatively long-term—most will not expire till at least 2011. In addition, in our view the proposed combined company will likely need to maintain two 

separate network operating architectures for several years as it continues to service 

existing customers. The itemized details and timing of these synergies by line item 

can be seen our report dated January 12, 2007, entitled—XMSR and SIRI Should 

Act On The Urge To Merge . . . Now. 

The bottom line is that, according to our estimates, these synergies could amount 

to value creation for XM and Sirius stockholders of approximately $8.00 and $1.73 

per share, respectively, at the exchange ratio set forth in XM and Sirius merger 

agreement. For further details on this analysis, please see our report of 

February 20, 2007 entitled, Wedding Bells Are Ringing For XMSR and SIRI. 

These amounts would correspond to premiums on the current equity prices of XM 

and Sirius of approximately 66 percent and 60 percent respectively at Monday’s 

closing price—and this probably is the major focus of the capital markets. 

We believe that the combined company will almost certainly have greater resources to invest in further technological innovation leading to a more rapid development of improved products than either company would on a standalone basis. As 

for implementation, that will be up to management. 

We believe that the satellite Industry is a viable one with or without this merger. 

However, we would note that as competition is increasing for the mobile entertainment consumer, (as illustrated by the evolution of the iPod to the iPhone, broadcast 

audio and video over cell phones and MP3 integration into the automobile, broader 

adoption of over-the-air HD radio), we believe that the industry would be in a much 

healthier and stronger position should the proposed merger occur. 

In conclusion, I would like to note that RBC Capital Markets has at no time 

served as a financial advisor to either XM or Sirius. 

40 

The CHAIRMAN. I thank you very much, Mr. Bank, Vice Chairman Stevens. 

Senator STEVENS. Thank you, Mr. Chairman. Mr. Karmazin, 

what happens if this is not approved? 

Mr. KARMAZIN. If for any reason this merger is not approved, I 

believe that both companies continue to operate, that we have not 

made a failing argument case because we believe that both companies are viable. I think that competition would lessen, and I believe 

that satellite radio would be weaker than it should be. And part 

of the reason that the NAB is here to testify is obviously because 

they would like to see what you just said happen, because obviously the existing broadcasters that have HD radio and terrestrial 

radio do not want to see the merger happen because they don’t 

want to see satellite radio be a better choice for consumers. Because if satellite radio is better for the consumers because we have 

lower prices and because we give the consumer more choices, that 

will impact terrestrial radio, so we will become a less good competitor and the NAB would have gotten their way if in fact the merger 

doesn’t happen. 

Senator STEVENS. I may be misinformed but I’m informed that 

people who have satellite radio, one or the other, also have overthe-air, and they are more high income people; is that right? 

Mr. KARMAZIN. I think that in the case of terrestrial radio, everybody has an AM/FM radio in their car. So if you think of where 

radio is listened to, if you listen to your radio in your car, you have 

an AM/FM radio there. As far as the satellite radio customer, it 

cuts across all ethnic and all economic groups so that we have subscribers who are not, you know, at the very extreme ends of either 

of those spectrums, or are at both ends of the spectrum. 

Senator STEVENS. But if an automobile has one satellite receiver 

it doesn’t receive the other provider, right? 

Mr. KARMAZIN. That’s correct. And that’s why it’s such a disadvantage to the consumer. Because right now if you like Major 

League Baseball, let’s use that as an example, and you buy a Ford 

vehicle, you have an exclusive service right now with Sirius so that 

you are unable to get that content that you would also like to have. 

So it’s obviously part of the argument that we make as to why it’s 

such an advantage to the consumer is that it’s not just the lower 

price but the greater choice, so when you buy a Ford vehicle you 

might have the opportunity of having the NFL and having Major 

League Baseball. 

Senator STEVENS. As satellite radio was developed, was it impossible to make just one set that received both? 

Mr. KARMAZIN. One of the things that both companies had 

worked on, because as part of our commitment to the FCC that we 

would develop what they are calling an interoperable radio, would 

be a receiver that could have both services. And we have developed 

such a receiver and have made our proprietary intellectual property available to any manufacturer who would like to make it. 

There is no subsidy that is being given by XM or Sirius to subsidize 

that interoperable radio. That radio would cost a higher price in 

the market today than the consumer would be willing to pay. 

And the reason, Senator, that the companies are not subsidizing 

the radio, whereas we do subsidize our other radios, is that when 

41 

you buy just a Sirius radio we would subsidize it because we get 

a subscription. It doesn’t make very much sense for us to subsidize 

a radio that doesn’t result in a subscription for us because if a consumer bought that interoperable radio and they chose to subscribe 

to our competitors or one or the other services, then we would not 

be getting a subscriber. What we have said is that as a result of 

this merger, that we would make those interoperable radios, or 

make that interoperable radio commercially available to consumers 

as a benefit to consumers as a result of this merger, so they could 

get the full content of both services. 

Senator STEVENS. Mr. Withers, how much competition does the 

over-the-air broadcaster get from satellite radio now? 

Mr. WITHERS. Well, the competition now, Mr. Vice Chairman, is 

the fact that they compete in all of our markets all the time. If we 

have a market with six radio stations in it, XM and Sirius have 

a total of approximately 303 channels, and yet the market that has 

six stations, that’s all they have. If those stations, and let’s say four 

of them are FM stations and four of them had full HD complement 

and they had three additional channels, that would be 12 more, 

and that certainly doesn’t compete. That’s a disingenuous argument that we would have competition face-to-face with 303 versus, 

you’re talking about 18 or so. 

They compete with us. We don’t compete with them on a national 

basis. They were authorized as a national radio service and they 

are. I also can point out that the 1997 authorization for both satellite services required them to have an interoperable receiver and 

they should have had one on the market in my opinion a long time 

ago. Because if it served both, it was subsidized by the subscriber 

to Sirius, then Sirius would get that subscription rate, and if it was 

XM they would get it. But it would be a receiver that would pick 

up both and it would have certainly eliminated the Beta-VHS situation now where they are not compatible with each other. 

Senator STEVENS. Mr. Kimmelman, do you see any consumer 

benefit from this merger? 

Mr. KIMMELMAN. It’s really hard to see, Senator Stevens. Even 

as they claim their major competitor is broadcast, local broadcast 

radio, think about whether the consumer would benefit from of getting a monopoly in satellite radio. Consumers pay nothing for local 

broadcast radio. It’s free. It’s advertiser supported. Satellite is not 

a competitor that is going to drive down the price of local broadcaster radio. It’s already free. So it’s really hard to see meaningful 

benefits there. And for the 14 million who already have satellite 

radio, or 20 million who will have it, to have one choice instead of 

two is an enormous harm. I hear a lot of promises and maybe you’d 

want to create a regulatory screen around those promises if you 

really wanted to move to monopoly, but if you’re going to go that 

route why don’t we take back half the spectrum. They don’t need 

double the spectrum to offer a monopoly service. They were licensed to compete against each other. So if you want to change the 

model, you could go that way, but straight out whether this merger 

benefits consumers, it’s very very hard to see any benefit. 

Senator STEVENS. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

42 

Senator LAUTENBERG. This references the theory that they would 

like to have me here and I would have to pay for this. Oh my gosh. 

Well I used my good remarks already. 

Mr. Karmazin, talking about the lower cost receiver, because it’s 

said there is a breadth of these lower cost and higher cost receivers 

that presently could accept the two channels, and then if the merger went through, obviously the one. What about the quality of the 

reception on these? Are they—am I making myself clear here? 

Mr. KARMAZIN. I’m not sure. Our service that we offer is a service that provides for excellent, almost CD quality kind of service. 

If you mean the sound quality from a point of view of the content 

quality that’s available, you know, we have a full spectrum of content on both services, you know, ranging from NPR to Radio Disney 

to sports to entertainment kinds of programming. On our receivers, 

there are receivers that, you know what we have said, is for every 

single receiver that’s out there today. So assume you went into 

Best Buy and you bought a Sirius or an XM radio a year ago and 

this merger happens, those receivers are not going to be obsolete. 

So every one of those receivers will still be able to work in the new 

service and what we will do, and what we have committed to doing 

is that if you bought an XM receiver, then we are going to be able 

to take some of the content from Sirius that you can’t get today 

and make it available to you on that other receiver. 

I know that this Committee, I think, had a hearing a couple 

weeks ago on Major League Baseball because baseball was not 

available on one platform. And what we are saying is that this 

merger is going to make more consumers have access to more content and get it at a lower price than they could without the merger. 

Senator LAUTENBERG. The thing that I see that Mr. Withers, I 

think amplified, is whether or not the local interests are served. 

We in New Jersey have a particular situation with a channel 

whose license includes very specific obligations to provide local 

news service. 

We have been attentive to that obligation and when the company 

announced that they were going to move their news operation to 

New York City, we said just remember, you have a license renewal 

coming up and we are going to have something to say about it. 

Well, they canceled that program. And the question is why, why 

couldn’t these things, Mr. Withers, operate successfully together 

and just like any other selection you make about program content, 

and without impairing the local opportunity, the local broadcaster’s 

opportunity group that you represent here, why wouldn’t that permit you to operate side by side with this merged company and still 

protect your share of the marketplace? 

Mr. WITHERS. As I understand the question, and I thank you for 

it, they are operating side by side as they are today, but they are 

not doing local programming, they are not doing local sales. And 

I know that Mr. Karmazin has indicated that he would be willing 

not to do either, but we are the ones that if there is a missing child 

and we have to put the alert out, the AMBER alerts, we do it. We 

are the ones that do the weather forecasts. We are the ones that 

do the school closings if the buses break down. And in some markets if there is a lost dog, a Dog Gone report, they have no interest 

43 

in doing that. But we compete against them every day for programming. 

And they spend a lot of money on their programming and do a 

very good job, the way that they do it as a national programming 

service. And if we are going to exist as a local service and local 

broadcast service, which we are today and proud to be, then we 

have to have the economic base to do that. And if that’s undercut, 

then you’re left with a national service that really doesn’t care 

about the local situations. They can’t handle a tornado alert in 

southeast Missouri or in southern Illinois, western Kentucky, wherever, in Anchorage, if Anchorage were to get a tornado. 

Senator LAUTENBERG. Does that compare to network services 

who also own local, or franchise local broadcasters, NBC, ABC, 

what have you? 

Mr. WITHERS. Well, that’s a good analogy, sir. The national network, their local affiliate then has the obligation to do that. But we 

are not local affiliates of XM or Sirius. We are totally, you know, 

it’s a totally different ball game. 

Senator LAUTENBERG. Right. But if there was a side, if there was 

side by side opportunity then that would not, kind of, resemble the 

situation—— 

Mr. WITHERS. Well, I don’t think, and I’m not authorized to 

speak on this matter for the National Association of Broadcasters, 

but I was at a hearing the other day when Mr. Karmazin testified 

that they had lost $6 billion with their business plan. I don’t think 

we have any intentions of making an offer for XM or Sirius. 

Senator LAUTENBERG. Well, I guess there are people who think 

that some of the content is worth an awful lot of money. 

Mr. WITHERS. It—I think that—I’m trying to—I see where your 

thought process is on that. 

Senator LAUTENBERG. I’m trying to be fair here on both sides. 

Mr. WITHERS. Oh, I know you are. 

Senator LAUTENBERG. I’m very interested in your views, and I 

would just move to Ms. Sohn for a minute. Should the FCC require 

that XM and Sirius return some part of the spectrum if they 

merge? 

Ms. SOHN. We have said that they should definitely look at that. 

You know, it’s possible that XM and Sirius might have an idea for 

that extra capacity that would serve the public interest, particularly local broadcasting. I mean, I guess I don’t understand why it 

wouldn’t be better for New Jersey to have the combined entity do 

local programming and broadcasters do local programming. I know 

you have that problem with WOR and New Jersey is often underserved. So, why not allow more local broadcasting. So it really 

would depend on the plans that XM and Sirius have for the extra 

capacity; however, I do think it’s something the FCC should look 

at, whether they really need to have all 12 megahertz of spectrum. 

Senator LAUTENBERG. Yes. That would certainly, I think, provide 

an outlet for competitive operation. And I think it’s fair to say, Mr. 

Karmazin, that the most obvious conclusion that one draws is that 

it would be awful good for the companies, for the two organizations. 

The question is, is it as good for the consumer as it is for the companies. We’ll be looking at that, Mr. Chairman. I ask for a period 

of time to try to make some decisions on our side as well as—— 

44 

Mr. KARMAZIN. Did you want me to answer that question? I’m a 

resident of New Jersey. 

Senator LAUTENBERG. I just changed my mind, Mr. Chairman. 

Mr. KARMAZIN. And I know exactly what you’re talking about, 

but let’s just get real about this. So you get into your car in New 

Jersey and you have an AM/FM radio. And if in fact you chose to 

and you decided that you wanted to pay for radio in addition, that 

we have convinced you that the content we offer is worth paying 

more for than for something you get for free, then you’ll have the 

satellite radio. And the merger makes it beneficial to the consumer. 

I’m not talking about the benefit, you know, for anybody but the 

consumer in what my comments are because I believe lower prices 

and more choice for the consumer is a good thing. And we are not 

looking to replace local radio. Local radio is going to exist and local 

radio, by the way, is financially amazingly healthy, you know. I’ve 

been in it for a long time and made an awful lot of money in it. 

And if you question it, just take a look in the papers and see how 

much money Clear Channel is selling itself for. So there is no question that there is a very, very healthy terrestrial radio who, by the 

way, got HD radio for nothing. So the same people that control the 

AM/FM radio stations today are also being given free HD radio. So 

this is not a troubled industry, and we are not saying that Sirius 

is troubled, but we do believe that if you believe that choice for the 

consumer is a good thing, then this merger is a good thing. 

Senator LAUTENBERG. If I may, Mr. Chairman for a second here, 

maybe a couple of seconds. I had in the car I own, a General Motors car, XM radio. Now along the way—and I pay for it—along the 

way suddenly a choice part of that was taken away. So effectively 

if I want to have the same kind of programming, my price has just 

gone up substantially. And I’m talking about MSNBC, that was 

shifted away from XM radio. 

And so now I have to pay separately for what I used to pay only 

one time for. 

Mr. KARMAZIN. Not exactly accurate, sir. MSNBC was taken off 

by a lack of popularity. You can’t buy it. It doesn’t cost you more, 

it just was replaced at a higher channel. It’s not like they are selling it at a higher price; they just said we are constrained with a 

certain amount of bandwidth and we are going to put channels together that are going to be covering a broad spectrum, so they have 

Fox News, they have CNN News, they have public broadcasting. 

Senator LAUTENBERG. What does Sirius have? 

Mr. KARMAZIN. Sirius has Fox News, CNN News, NPR News, 

BBC News, we have ABC News, so we have an—— 

Senator LAUTENBERG. So MSNBC is no longer—— 

Mr. KARMAZIN. Correct. We do not choose to have MSNBC as one 

of the channels we offer. 

Senator LAUTENBERG. We have to expand the spectrum. 

Mr. KARMAZIN. I welcome that. 

Senator LAUTENBERG. Thank you very much. 

The CHAIRMAN. Senator Dorgan. 

Senator DORGAN. Mr. Chairman, I have to leave. I’d be happy to 

defer to the gentlewoman from Minnesota if she wishes. 

45 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you, Mr. Chairman. I look at this 

deal as a consumer. Is it true that some of the customers will have 

to upgrade their equipment if these companies merge? 

Mr. KARMAZIN. No. 

Senator KLOBUCHAR. Is there any kind of a change to the equipment or anything that they have to buy? 

Mr. KARMAZIN. No. Senator, if you subscribe to one or the other 

services today, that radio will not be obsolete. You will still be able 

to get everything that you’re currently getting from that service 

today. And additionally, we are willing to add to that with the existing radio the ability to get some content from the other partner 

as well, but the receivers will not be made obsolete. As a matter 

of fact, if you went into a retailer today you will see both companies having a guarantee that we are offering the consumers that 

says that it’s a guarantee that these radios will not be obsolete. 

Senator KLOBUCHAR. To follow up on some of the questions that 

Senator Lautenberg was asking about the spectrum, and the 

amount of spectrum was given out with this idea that there would 

be competition. I just wonder, I know that Ms. Sohn answered the 

questions, but I wonder if others could answer that. He was going 

into the area of whether some of the spectrum should be returned 

when we don’t have two companies competing. You want to start, 

Mr. Kimmelman? 

Mr. KIMMELMAN. Yes, I’d love it. Retaining twice the spectrum 

initially allocated violates the FCC’s own guidelines for how this 

spectrum was auctioned so it’s in direct violation of the rules. I 

would hope you would be promoting competition as opposed to monopoly, but if you went down the path that there should only be 

one satellite radio provider for whatever reason, our financial analysts tell us they are going to consolidate content onto fewer channels. And we have already heard from Mr. Karmazin in previous 

hearings so they have got excess capacity. 

The problem here is that you’ve got this interoperable equipment—the consumer has been held hostage here, Senator. We had 

a promise of interoperable equipment that wasn’t fulfilled. Mr. 

Karmazin says they couldn’t do it because, because they would lose 

customers. Well, if they worked together, or even if they had come 

to the Congress if they really felt they needed an antitrust exception to be able to come up with one standard for equipment and 

then competed on that, we wouldn’t be in this situation. 

But now we have two different pieces of equipment, which they 

say they will keep functioning, and they are going to hold us hostage for all the spectrum. So if you decide to go with the monopoly 

consider what Senator Stevens proposed with the DTV transition, 

which is make the first dollars from an auction of the reclaimed 

spectrum available to you to hold consumers harmless, and you 

probably would have money left over for the Treasury for other 

purposes. So if we went down that path, there is another model 

here that gets them the consolidation they want, and the synergies 

which will let them squeeze programmers, squeeze auto manufacturers. 

46 

I still don’t clearly see any benefit to consumers, so you would 

need some sort of regulated price, but by requiring that some spectrum be returned you would be able to have spectrum available for 

other purposes. 

Senator KLOBUCHAR. Others want to answer this about the spectrum? 

Mr. BANK. Well, I think from a practical purpose what we would 

say as financial analysts is a stronger company would probably 

lead to greater technological innovation. And you know, ultimately 

I think while it’s going to be up to the management of what they 

do with the spectrum there is very good likelihood that you’ll see 

improved innovation and additional products that will program 

that spectrum. So you know, from a practical perspective if you 

took away some of the unused spectrum, I think the key driver in 

this industry is its entrenchment in the automotive industry and 

the original equipment manufacturers. It would be relatively difficult from a standing start for a new competitor in satellite radio 

to probably penetrate that entrenched competitive landscape right 

now. But the reality is you may be trading off technological innovation that could bring a lot of really interesting and important new 

products. 

Senator KLOBUCHAR. Mr. Karmazin? 

Mr. KARMAZIN. Let me give you the spectrum answer. Senator 

Lautenberg mentioned that he has a car that has an XM radio and 

if in fact we were to do anything with this spectrum, what we are 

now telling Senator Lautenberg is that he needs to buy a new radio 

because his receiver is only able to receive the XM satellite and the 

terrestrial repeater networks. So the idea of us not having the 

spectrum that we currently have would be a disservice to the consumers, because they would be the ones that would be disrupted 

because their existing receivers are only tied to be able to receive 

the existing system. 

I think the whole question, Senator, about satellite radio right 

now, and we got our first subscriber in 2002 and we had 6 million 

subscribers at year end last year, and XM had a little over 7 million subscribers, that the idea of these words that Consumer Union 

is using, and especially the comments that the NAB is using about 

satellite radio being a monopoly and that, you know, somebody 

must have their satellite radio when there are terrestrial radio 

with local radio, with the stations able to put whatever content on 

it—and I’m sorry, but we compete with all of this radio. 

There is HD radio. If you take your cell phone and you put your 

cell phone in a Bluetooth device in your car, you’re able to get all 

kinds of content, sporting events, all kinds of news, all kinds of 

music coming through your radio speakers in your car. So the fact 

that 10 years ago, you know, when the FCC gave us our license, 

there was a policy statement. I don’t think you want to use policy 

statements that were made 10 years ago insofar as dealing with 

the reality in the marketplace 10 years later, particularly since 

that marketplace is so robust. So there is plenty of audio entertainment content available to the consumers and I think the American 

consumer would be better off if they had a stronger competitor to 

terrestrial radio and satellite radio being combined. 

Senator KLOBUCHAR. Mr. Withers? 

47 

Mr. WITHERS. My response to that is, it’s an interesting observation that we have to make. If we are going to merge, we have to 

maintain both systems; otherwise, we have short sheeted the one 

that doesn’t have it. But then also by the merged monopoly continuing to have the entire 25 megahertz, there will be no way and 

no time where another competitor could enter, enter the satellite 

race. 

I did want to address the fact that we had a dangling gift a moment ago where we were given the free HD, when all we’ve done 

is, as they multiplexed their signals and satellite, the Commission 

originally thought each carrier would have about 50 channels, and 

the technological advances of multiplexing has allowed 133 in one 

case and 170 in another, and that’s fine. But HD is done with our 

existing frequency, so we weren’t given anything. We have had to 

spend money to provide another service for free to the American 

public and that’s where that came about. 

But I think if you’re going to have, as Mr. Kimmelman said, if 

they go down the road that way, it doesn’t make any sense to leave 

all the spectrum there with the merged monopoly. 

Senator KLOBUCHAR. Thank you. 

The CHAIRMAN. Thank you. Senator Dorgan. 

Senator DORGAN. Mr. Chairman, thank you very much. Mr. 

Karmazin, first of all, thanks for visiting yesterday. You are a very 

accomplished chief executive officer and as I said, I’m a customer. 

I like satellite radio. But as I understand your message, what you 

are saying is both companies are in pretty good shape. You believe 

both companies are in a position to reach profitability and that is 

not what provokes a merger. You talk about merging for purposes 

of efficiency, and the efficiency therefore would result in savings 

which then would be good for the consumer. 

I’m trying to understand that. I’ll give you a chance to comment 

on it, if I can ask a couple of questions in the middle of all of that. 

One, what kind of equity position does Clear Channel have in either of the satellite radio companies? 

Mr. KARMAZIN. Clear Channel has no position in Sirius and you 

know, I don’t know for sure, but let me tell you what I believe, is 

that when XM first started, Clear Channel was an early investor 

and they owned a certain percentage, I want to say about 10 percent of the company. They have subsequently monetized that investment and are no longer—they were a board member at some 

point. They are no longer a board member of XM nor do they have 

a financial interest in the company as a result of that monetization. 

Senator DORGAN. That’s fine. Mr. Karmazin, I called XM some 

while ago about a programming change because when I was out 

running I would listen to XM, and they changed programming. And 

I called them and asked them why they changed that particular 

kind of programming on those channels. They said it was because 

of Clear Channel and Clear Channel had a certain percentage 

stake in the company, had certain proprietary capabilities in various channels. I’m trying to understand that because that’s also a 

part of this. 

Mr. KARMAZIN. Senator, I think the answer to that question, because that wasn’t financial investment, but Clear Channel has a 

certain number of channels remaining on XM service so that today 

48 

XM has some Clear Channel program stations. So therefore, a 

change that was made on a channel was the result of Clear Channel making a decision on one of their channels. 

Senator DORGAN. It’s interesting, though, that this discussion 

about what is the new competition, if one were to describe the new 

competition the way you described it, iPods and cell phones and the 

broadcasters, that the broadcasters are actually a part of XM, in 

this case one of the largest radio broadcasters is actually a part of 

XM. And second, if satellite radio and broadcast in general competes with iPod and cell phones, I suppose the logical extension of 

that is there needs to be no ownership limitations anywhere because everybody competes with everybody. 

Let me ask about pricing, if I can put up this chart. Some have 

been very critical that there has been a substantial amount of 

money spent in the early days. I read that in the papers. I don’t 

have the foggiest idea what you’re paying anybody else. If we were 

to ask both XM and Sirius what you are paying for this programming, would we get answers to all of it? 

Mr. KARMAZIN. I don’t know whether or not we can answer all 

of it, whether we would give you everything that we have a right 

to talk about. So on anything we are not precluded by a contract, 

there is nothing that we would hide. In other words, I would be 

happy to tell you what we pay for Nascar because we announced 

it, so we announced that we pay $20 million a year for the rights 

to have all of the Nascar races. That was public. The Oprah announcement was public. The Howard Stern announcement was 

public. I don’t know whether or not Senator Bill Bradley, who gets 

a very small amount of money, would want us to be talking about 

how much money he is making. I’d have to leave that to whether 

he would want us to do that. 

Senator DORGAN. Well let me send you a letter and you tell me 

what you can and what you can’t answer. My understanding is 

most of it, you are not able to answer because of what you call confidentiality agreements. 

Why did Sirius drop C–SPAN? 

Mr. KARMAZIN. We like C–SPAN, we wanted to keep it. One of 

the things we have is some constraints on our content, so we are 

often rotating channels and making changes. C–SPAN was a very, 

very low utilized radio channel on our service and we felt that we 

would be able to serve our customers better by providing another 

service to C–SPAN. C–SPAN is available on XM. It’s just not available on Sirius. 

Senator DORGAN. Let me say, Mr. Withers, while I believe that 

this merger is not a good thing for the consumers, you’re not exactly a perfect messenger here. As you know, you come to this table 

in most cases supporting substantial increased concentration, and 

my concern about the merger is the concentration in this case from 

two to one. But when I look at radio broadcasting and particularly 

radios, there has been a very substantial concentration there and 

I worry very much that the very argument that Mr. Karmazin 

makes here is an argument that will be made by you at the next 

hearing when you come to the table to say, you know, when you 

define this market and you talk, Senator Dorgan, about concentraVerDate Nov 24 2008 08:47 Feb 27, 2013 Jkt 075679 PO 00000 Frm 00052 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\78881.TXT JACKIE
49 

tion, understand that Clear Channel and all these companies, they 

are competing with cell phones and iPods. 

When I say you’re not a perfect messenger, in North Dakota, you 

all know the story, but all six stations in Minot, North Dakota were 

purchased by Clear Channel, every station in the town of 50,000, 

40,000 was purchased by Clear Channel. And at 2:30 in the morning they called the radio station, nobody answers the phone, you 

know, why would that be. And so I would just observe while we are 

on the same side on this issue, I don’t view the broadcasters as perfect messengers to this subject. 

And let me just ask Mr. Bank, and I’ll be glad to have Mr. Withers comment in a moment. 

Mr. WITHERS. I was going to make, if I might—— 

Senator DORGAN. Yes. Go ahead. 

Mr. WITHERS. One that we are talking about radio companies, 

and when we have, XM and Sirius are national radio companies 

basically. But as far as us at the broadcasting industry and the National Association of Broadcasting asking for more concentration of 

control, if there has been proposals they have been de minimis. It’s 

like we are limited, I understand they are limited to—I’m sure I’ve 

heard, so have you, that we want all ownership limits removed. I’m 

not a party to that but if you have, if you’re allowed to own eight 

stations out of New York for example, the proposals I have heard 

kicked around, it might go to, 10 or 12 would be the proposals. But 

still, that’s a long way from the 330 some odd. 

And Clear Channel must have heard your message that you repeated because they have sold those stations; they are on the block 

and will be sold. 

Senator DORGAN. On the block. That’s more correct. 

Mr. WITHERS. They are disassembling a lot. They have 440 stations up for sale right now. 

Senator DORGAN. Well, we’ll see. I hope we can have some hearings on the issue of localism one of these days as well, because 

that’s another part of what broadcasting used to be and too often 

is not any longer. 

Mr. WITHERS. We may welcome those. Thank you. 

Senator DORGAN. Mr. Bank, you indicate, you talked about these 

synergies in support of, and I understand you come from New York 

and you’re looking at the market side of this. Synergies, first, are 

straightforward simply eliminating redundant effort components. 

We had a hearing in this room not very long ago with a couple of 

airlines that wanted to merge, and they made exactly the same 

case. My guess is any two companies that would come to the table, 

or any company that comes to the table saying I’d like to merge 

with another company in their industry with any circumstance 

where there is some dominating position, I think they would be 

able to make the case that there are synergies and efficiencies. 

Would you agree that there is no unique case to be made here at 

all with respect to synergies or efficiencies, just as there are not 

with two airlines that want to merge and become one because they 

combine their reservation systems and so on, or is there some 

unique thing that I’m not aware of here? 

Mr. BANK. Well, I think the unique issue is more on the content 

side where you, the second example of where the synergies can 

50 

come from. But the reality is yes, you know, network architecture 

and back office savings are probably relatively common to any two 

companies in the same industry where you can derive savings. 

Senator DORGAN. And Mr. Kimmelman, finally, I suppose people 

perhaps say this of me but I probably should say it of you. We can 

probably guess your testimony before the hearing started. You generally are opposed to mergers and these sort of things. Tell me 

what’s unique about your opposition to this, if there is anything 

that’s unique. 

Mr. KIMMELMAN. Senator Dorgan—— 

Senator DORGAN. I admire that position, I don’t say that to denigrate it, but tell me what is unique about your opposition to this. 

Then I’ll ask Mr. Karmazin to respond. 

Mr. KIMMELMAN. It’s when it gets to a point of concentration and 

reduced consumer choice, and here we are talking about not all 

consumers but the 14 million who have, and maybe the 20 million 

who want real mobile national audio programming. They would be 

severely harmed here. That’s a significant segment of the consuming public. And going from two to one is one of the most extreme losses of competition that we could face. So, it opens, if you 

follow the logic of this type of merger, even if it’s not the most important service in the world to consumers, it opens the floodgates 

to more broadcast mergers, more cable mergers, more newspaperbroadcast mergers just by following the exact same reasoning. 

So as a matter of principle, as a matter of logic, using the same 

analysis we’ve used in all those other mergers, this one just doesn’t 

pass muster. 

Senator DORGAN. Mr. Chairman, let me ask Mr. Karmazin in 

fairness to respond to the issue of is there unique synergy and so 

on, and then if I could ask him again, could you give me the construct of how this merger putting two into one would benefit the 

consumer, because I think that’s the case you’ve made. 

Mr. KARMAZIN. Sure. I think we have not yet submitted our answer to the Department of Justice as to what the efficiencies of this 

merger will be, but we believe there are some compelling efficiencies that we will be able to make to the Department of Justice 

that would demonstrate that this merger has unique opportunities 

for efficiencies which would mean benefits to the consumer. 

And I can tell you that with no details of the merger, you know 

Mr. Kimmelman was against the merger obviously because of the 

fact that we are in the media world, and there is no such thing as 

a good media merger. And we happen to think that this is one that 

is. 

And in answering your last question, the benefit to the consumer 

is the fact that the consumer will have more choice if the merger 

is allowed to proceed than they will if the merger is not allowed 

to proceed. The consumer will get lower prices if the merger is allowed to proceed than they will get if the merger is not allowed, 

so lower prices and more choice are the benefits to the consumer. 

The CHAIRMAN. Thank you. Senator Thune. 

51 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman. I want to thank you 

for holding this hearing today and thank our witnesses for taking 

the time to testify before the Committee, and for your input. 

Satellite radio is a particularly important resource for those of us 

in rural states. There are too many places in my state of South Dakota where you can turn on the terrestrial AM/FM radio, hit the 

seek button, and just have the dial spin and spin and spin. So for 

traveling businessmen and women, farmers, and many other music 

or sports enthusiasts in South Dakota, satellite radio can be one 

of the few consistent means to get a wide variety of music and 

other radio programming. The definition of the market is obviously 

the key question in this debate. And it would be my hope that 

these hearings and deliberations at the FCC and Department of 

Justice will help us come to a clear understanding of how the market should be defined, and once that market is defined, I believe 

the invigorating fierce competition among market players is the 

best way to get consumers the best services at the best price. 

Mr. Karmazin, can you promise customers of both XM and Sirius 

that they will not have to buy new equipment to receive the same 

coverage in the foreseeable future? 

Mr. KARMAZIN. Yes, sir. 

Senator THUNE. As I mentioned at the outset, satellite radio may 

have fewer terrestrial AM/FM rural competitors, there could be 

fewer alternatives for these listeners than for listeners in Chicago 

and LA. Does the competition in larger more populated areas between terrestrial and satellite make up for the lack of competition 

that exists in some rural areas? 

Mr. KARMAZIN. Senator, we think this merger is particularly beneficial for people in rural areas because of the importance of satellite radio, and what we are committed to is to offer people lower 

prices and more choice. So we will obviously not be raising prices, 

and any price increases that you would be concerned about would 

be dealt with that we are a national service and not, we don’t know 

where your radio is at any given moment in time. So you could be 

a New York subscriber but you could be somewhere in South Dakota, so yes, no new receivers and no higher prices. 

As a matter of fact, we will have a lower price point than we 

have ever had before. We started our service in 2002 with a price 

of $12.95, the exact same price that we have today, and as a result 

of the efficiencies that we would get from this merger, because we 

have said the benefit, we know there is a benefit to shareholders, 

but there has got to be a benefit to the consumers. So we are going 

to take some of the benefits that our shareholders get and put it 

back in the form of benefits to the consumer, and that will result 

in lower prices, so we will have a package that will be available 

of service below the current $12.95, so it will be cheaper, not necessarily more expensive. 

Senator THUNE. Thank you. I appreciate the answer. Mr. Withers, if you believe that local terrestrial radio stations are not competing against satellite radio, then why are many local radio stations and the NAB coming out so strongly against the merger? 

52 

Mr. WITHERS. We don’t compete against them on the national 

level because we can’t. They are a national radio company. Both of 

them are. But they compete against us every day, and that’s why. 

Because if we have a market like your markets in South Dakota 

where there are not that many—in fact, I have a truck in Colorado 

that at night I can’t pick up anything up there at the ranch except 

satellite. So I hate to tell this to Mr. Karmazin, but I happen to 

be an XM subscriber there and it works because I can listen to ball 

games, et cetera, but they compete against us every day by the 

plethora of channels that they have. And when you’re a national 

radio company, you program nationally. We can only program locally, so we are competing against that, that morass of signals that 

we have, we can’t have any more than what we have, and that’s 

where we are. 

Senator THUNE. Who would you define as competitors to local 

AM/FM radio? 

Mr. WITHERS. Who would I? 

Senator THUNE. Yes. I mean, what’s your competitive environment? 

Mr. WITHERS. The competitive environment is the satellite companies obviously and anybody that takes attention away, iPods, we 

have talked about cell phones. iPods are individually programmed 

stations and basically it’s what you have a personal preference for 

and what you want to hear and when you want to hear it, and we 

have no quarrel with that. Because we have found that when it’s 

information they need, and other entertainment with the news, 

they will revert back to the local over-the-air stations, the terrestrial stations. 

I think some of the things that have been bandied around today 

about competition, and broadcast over cell phones and over this 

and over that, and the Bluetooth and the Red Dragons, all the 

things that we do in cars, out of cars, that would be fine 15 to 20 

years from now. But when this merger was proposed and filed back 

in March, we looked at the existence in the marketplace as of the 

date that it was filed. And then they are not the competitors that 

they will be 15 or 20 years from now. In 20 years we can look at 

it again and see where we are. The direct answer to your question, 

which I’m sure you’ll be pleased to hear, is anything that diverts 

the attention away from listening to AM and FM radio. 

Senator THUNE. Ms. Sohn, in your testimony you describe XM 

and Sirius as basically weak in their current state, and if the merger passes antitrust scrutiny, then you would support the merger 

with a few conditions. Why do you believe that conditions are needed for the merger, and won’t the competitive marketplace not provide enough checks and balances on the new combined satellite 

radio providers? 

Ms. SOHN. Well, I guess I’m not sure. And you know, even if the 

authorities pass muster on this, I still think it would be better for 

the consumer to have some protections. So I mean, I tend to think 

that the market is a little bit broader. I think some of the opponents of the merger are sort of prejudging what the antitrust authorities would say. I think that the antitrust authorities have to 

look at consumer data and decide, you know, do iPods—there are 

tons, tens of thousands, hundreds of thousands of podcasts out 

53 

there. It’s not just that you go to iTunes and put songs on your 

iPod. In fact, there was a recent study that showed that for every 

iPod there is an average of 22 purchased songs. So most people either use the songs that they already have on their CDs or they go 

to the tens of thousands, hundreds of thousands of iPods out there, 

OK? 

So I think that, that kind of data needs to be out there, the antitrust authorities have to look at it and say OK, is this something 

that will keep satellite radio prices low? I mean, we could differentiate every single, you know, the iPod or Internet radio, we could 

spend all day saying it’s not exactly like satellite radio. We know 

this but that’s not the relevant question. The relevant question is, 

is it substitutable in a way that would keep satellite radio prices 

low. 

But let me get back to your main question. The main question 

was why the conditions. Again, I still think even if the antitrust 

authorities pass on this and say it’s OK, I still think there needs 

to be some temporary conditions to ensure that prices don’t get up, 

that there is still diversity of programming, and that consumers 

have programming choices, which it sounds like some of these 

things the combined entities are willing to promise. They don’t 

seem to be particularly burdened by it. 

Mr. KIMMELMAN. Senator Thune, I’d just like to say that maybe 

some things aren’t known, but their 10(k)’s indicate quite clearly 

that their revenue is up 50 percent, subscribership is up 50 percent 

just last year, the year before. These are not failing companies. 

These are not companies that can’t compete against each other. 

They are companies that are holding consumers hostage by signing 

exclusive deals so that you can only get the NFL on one and NBA 

on one, usually baseball on the other. Holding consumers hostage 

by not working together by having interoperable equipment so you 

can have the same equipment and pick whichever you want. And 

now coming in and saying the only solution is to allow them to 

merge and dominate this market, where in many parts of the country there is no local broadcast radio to listen to. So I think there 

are a lot of facts known here that should lead us to believe, as Senator Inouye said at the beginning, there’s great skepticism about 

allowing them to merger two to one. More facts would be wonderful, but a lot are already known. 

Senator THUNE. I appreciate that. Mr. Chairman, I thank you for 

holding this hearing and all of you for your testimony. I think any 

time you start talking about going from two to one, that’s pretty 

unusual in a competitive market environment, and so I think you 

can understand why there is going to be a good deal of scrutiny 

and analysis given to this proposal. But I appreciate your answers 

to the questions. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator McCaskill. 

STATEMENT OF HON. CLAIRE MCCASKILL, 

U.S. SENATOR FROM MISSOURI 

Senator MCCASKILL. Thank you, Mr. Chairman. It’s been a long 

time since I’ve sat in a college economics class but I have to confess 

to you, Mr. Karmazin, that as I sit here, I don’t ever recall the lecture where less competition delivers more choice and lower prices. 

54 

On its face less competition does not mean more choice and lower 

prices. And if, if we are to assume that you are testifying in good 

faith that your company is going to sacrifice stockholder profits indefinitely in the future to keep prices low, then I think we need to 

look back at commitments that have been made previously that 

have not been kept. And I want to specifically ask you about the 

repeaters. 

In St. Louis, nine of the 11 repeaters exhibit some kind of variance with FCC rules. You have clearly ignored FCC requirements 

on repeaters in the way that you have rolled them out across the 

Nation. With that and the promises that were made about interoperability in terms of receiver boxes, which I know has been covered prior to my arriving at the hearing, I apologize, I was at 

Armed Services, it’s been 10 years since promises were made about 

interoperability, and as one of your subscribers I’ve never heard 

about such a thing. 

I’m a consumer. I’ve never heard about interoperable receivers. 

I have never heard about where I could buy one. I have never 

heard about how much it would cost. And that makes me more 

than cynical and suspicious about the testimony you give about 

more choices and lower prices by eliminating competition. Could 

you speak to your failure with respect to FCC compliance as it relates to the repeaters? 

Mr. KARMAZIN. If you don’t mind, I’d like to respond to all three 

of the points that you raise. So first of all, on the economics class, 

we compete with free radio. And the reason that, if you were to 

take a look at our SEC filings going back 10 years, what we have 

said is that we compete with AM/FM radio. You have to acknowledge that if you are in a car, Senator that you have in that car an 

AM radio and an FM radio, and let’s assume that you are a subscriber, you also have a satellite radio. And to say that those things 

are not competing with each other is just not fair. So the fact is 

that what keeps the prices low and why we are willing to deal with 

it is because of the fact and the reason that the NAB is here today, 

is that they don’t want us to lower our price because if in fact we 

lower our price we will get more subscribers, because it is easier 

to compete with free to charge a lower price than to charge a higher price. So what is the reason for it and why are we willing to do 

it? The reason we are willing to do it is that these efficiencies can 

only come about by the two companies combining, and that we are 

prepared because there are so many synergies, to give to the consumer some of this choice. 

Regarding the terrestrial repeater network, I’m not familiar specifically with St. Louis but I can tell you the fact that we found out 

that we had 11 in total terrestrial repeaters at Sirius that were operating not consistent with the FCC rules, and the day, the day I 

found out about it, I turned them off, because we believe in following the rules. 

If you wanted to look at the rulings, Senator and look at broadcasters who we compete with, there hasn’t been almost a single 

broadcaster that has not either been found violating some FCC 

rule, whether it was children’s programming in the case of a $24 

million fine, whether it be in the form of payola from a bunch of 

radio stations, whether it be AM on later hours. So I don’t condone 

55 

violating the rules. I don’t believe in violation of the rules. I’ve been 

a licensee for too long to do that. That, we’ll deal with the consequences, whatever those consequences are of the FCC, and if in 

fact the FCC fines us or does something, we would prepare to deal 

with violating rules. 

As it applies to the interoperable radio, if you take a look at 

what we were asked to do, what we were asked to do was to develop an interoperable radio, and we spent millions of dollars, XM 

and Sirius, on developing the interoperable radio. It’s not a loophole. It’s not a hedge. There was no obligation on our part to commercially market an interoperable radio. That’s for receiver manufacturers to do. We certainly have made our IP available to any receiver manufacturer that would like to develop an interoperable 

radio. 

So we have in fact lived up to everything that we have committed to the FCC as it applies to that. 

Senator MCCASKILL. Well, I understand that you know that you 

compete against free radio but you also compete against the other 

satellite company, and it is apples to apples here. It is a different 

type of listening experience. If I’m listening to music, I know that 

if I listen on my satellite I’m not going to listen to commercials except frankly, I will tell you just as a consumer, the irritating 

promos for other XM stations. It’s much different listening to 

music, listening to classical music on a satellite station versus listening to classical on a commercial station. 

I think you compete only in the significance of local programming, which I think is an issue for Mr. Withers and his colleagues, 

because if broadcasters don’t maintain local programming, you’re 

going to lose a competitive niche that you have against satellite. 

But you as a company subject to satellite to satellite competition, 

when it was time for me to decide, I had two competing companies 

that knew that they had to compete with one another to give the 

best and to be service oriented and to, in fact, compete on price. 

Now if there is only one satellite option, I think it is really unfair 

to try to claim that that is not eliminating competition. Clearly it 

is eliminating competition within an apples to apples comparison. 

I know that people violate the rules, but what you’re asking us 

today to say is we are going to live up to what we are telling you 

today in this hearing. And the bottom line is, there were representations made that interoperability would be commonplace and it’s 

not. You have subsidized receivers for years, but the two of you 

have not made any effort, which I understand as a business model, 

but I’m just talking about overall from the consumer’s perspective, 

I’m not here to protect your shareholders, I’m only here to protect 

the consumers, I also want to ask with resqect as to the repeaters 

that are in St. Louis, will they be brought into compliance if this 

merger occurs? 

Mr. KARMAZIN. Senator, there was not anything that said that 

interoperable radios would be commonplace. If you’d like, if you 

want to send me what you’ve read that says that, we have said 

that it would be commonplace, I’d be very happy to admit that I’m 

wrong. But I believe you’re wrong, Senator, that there is nothing 

that said that, and that we did live up to—— 

56 

Senator MCCASKILL. I guess the FCC rule gave that impression. 

I mean, if you read the actual language of the FCC rule, it’s very 

clear that one would get the impression in plain language it’s going 

to be required. 

Mr. KARMAZIN. I’ve read the rule and I don’t believe that’s accurate. And in answer to your question on the repeaters, that yes, 

that we do not believe on operating anything that’s not consistent 

with the FCC rules, and that’s true in the case of Sirius, all of the 

noncompliant repeaters are off. They are not on, in answer to your 

question. 

In the case of XM, there are discussions underway in demonstrating to the benefit of the consumer, to your constituency who 

feel that there is no interference in those repeaters and that the 

service is better, and there is discussion as to whether it’s in the 

public interest to keep those repeaters on or to shut them off, and 

whatever the FCC does, XM will conform to. 

Senator MCCASKILL. Just for the record, let me quote from the 

rule, ‘‘a receiver that will permit end users to access all licensed 

satellites’ DAR systems that are operational or under construction.’’ 

Mr. KARMAZIN. Doesn’t it say will develop? That’s what we did. 

Senator MCCASKILL. Their systems must include a receiver that 

will permit. 

Mr. KARMAZIN. That’s what I said. Senator we have developed it. 

It doesn’t say it will be commonplace. It doesn’t mean that we will 

advertise to you. It says that we will develop it, and we have, Senator. 

Senator MCCASKILL. Well, I appreciate your testimony. And just 

so that I’m an equal opportunity questioner this morning, just 

briefly let me say to Mr. Withers, first, let me acknowledge that I 

recognize that you have a number of stations in my state. Let me 

also say that in the boot heel, between you and Gary Rust, it’s hard 

to get any light. You dominate that area of the state and Gary Rust 

dominates the papers in that area of the state, so we have two 

large media conglomerates that for someone who has tried to navigate news and so forth in that area, sometimes it’s a little difficult. 

So I encourage you to keep in mind that competition is very important regardless of whether or not we are talking about the free 

broadcast radio airwaves or whether we are talking about satellite. 

Mr. WITHERS. Thank you for acknowledging the fact that we do 

have stations in your state, yes. But I don’t dominate the ownership of the stations in the boot heel. For example, in Cape Gerardo, 

there are 13 stations and I, my daughter and I have six combined, 

and there is one newspaper, so that’s different. 

Senator MCCASKILL. You’re right. Mr. Rust has a leg up on you, 

there is no question about it. 

Mr. WITHERS. He has stations in Bluff and Sikeston and—— 

Senator MCCASKILL. He has them all. 

Mr. WITHERS. I introduced Gary and his wife 30-some years ago, 

so obviously he is a great salesman, or she is. And I agree with 

your comments about localism, that’s very important, and the stations that don’t do local broadcasting don’t deserve to be successful, 

and I feel very strongly about that and I also concur with your idea 

on ownership. We have to earn our listeners. They don’t come to 

us. 

57 

Senator MCCASKILL. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

Most of the questions I have have been asked, but Mr. Karmazin, 

you indicated that a consumer or subscriber may opt out from paying, and you’ll get credit if you cancel certain adult channels. 

Mr. KARMAZIN. Yes, Senator. 

The CHAIRMAN. Let’s say that I wanted to cut out Howard Stern. 

What sort of credit would I receive? 

Mr. KARMAZIN. We have not made an announcement of what the 

exact amount would be but if you choose not to listen to Howard 

Stern, the way it works today is we’ll block it or you can block it 

on your own receiver. After the merger is approved, and one of the 

issues in listening to people talking about their concern is that we 

heard them say that it’s not just about not wanting to listen. We 

don’t want our money subsidizing that content that’s on the air. 

And what we have said is that we will have a credit, and at the 

appropriate time announce exactly what that is, what the credit 

would be for you not to listen, something I understand that hasn’t 

been done in other forms of entertainment to date. 

The CHAIRMAN. Will it be more than 50 cents or a dollar? 

Mr. KARMAZIN. You know, Senator, we have not discussed exactly 

how it will work, you know. We have gotten some people who are 

talking to us about a package of those adult entertainment content, 

you know, and whether or not it would be on an individual station 

basis or on a group basis. And once we have announced what this 

would be, we would absolutely make you aware of that. 

The CHAIRMAN. Well, so we have no idea what the benefit will 

be? 

Mr. KARMAZIN. Well, no. We know that there is a benefit, sir. 

Right now what we are saying to you, what we don’t know is how 

good a benefit it’s going to be, but we know that there is a benefit 

because you will not have to pay for it, and you know we recognize 

that, and we understand that it should be an important credit. 

The CHAIRMAN. I’ve been told that if you do have the merger, you 

will be eliminating about 90 channels because they are substantially similar or duplicative. What do you mean by that? 

Mr. KARMAZIN. I think what some have speculated, because we 

have not been able to spend the time in discussing what will happen after the merger, we have been working through the regulatory 

process, and what we have said is that we are going to continue 

to provide a service that is essentially similar to the exact service 

we have. So if you subscribe to Sirius right now you will get essentially the same 130 channels that you’re getting right now, and the 

same thing is true about the XM. There may be some efficiencies. 

So as an example, if we have a 1960s music channel and XM has 

a 1960s music channel, maybe we will have one 1960s music channel that would be available on both services. But you as a subscriber to the existing service will not be losing any channels. 

The CHAIRMAN. Where does that enforce the model about 90 

channels being eliminated? 

Mr. KARMAZIN. Senator, I have not seen it. I have not seen that 

specific report, so I don’t know where it came out of. 

The CHAIRMAN. I’ve been told that it’s in your filing for the public interest. 

58 

Mr. KARMAZIN. In our filing? Senator, if it’s in one of our filings 

then I will look at it again, but I don’t recall that specific language 

in any of our filings. 

The CHAIRMAN. Right now you have—— 

Mr. KARMAZIN. Senator, I have a whole bunch of lawyers sitting 

behind me and all of them are shaking their head no, that they 

don’t remember seeing it in any of our filings. 

The CHAIRMAN. But you do plan, if you’ve got a 1960s music 

channel and XM has the same thing, you will cancel out one of 

them. 

Mr. KARMAZIN. That is a definite possibility, but we have made 

no final determination on what the specific program lineups will be 

going forward. 

The CHAIRMAN. You won’t be able to tell us what the benefit of 

opting out would be? 

Mr. KARMAZIN. Well, no. I’ve said that there will be a financial 

benefit of opting out, much in the same way, Senator, that we have 

not yet discussed what the lower price point was going to be insofar 

as the $12.95. What we said is that it would be lower, so therefore, 

that’s a benefit to the consumer because anything lower is better 

than the consumer has now. What we have also said is that if 

somebody wanted both services, they would currently pay $25.90, 

and we said it would be a significant reduction to the $25.90 that 

it costs today. The specifics were at the early stages, Senator, of 

going through what we believe is going to be a long process and 

that we have not focused and we have not provided the specific information, but along the way we will, sir. 

The CHAIRMAN. Well, this application here speaks of 75 channels 

overlapped by generally providing substantially similar programming. 

Mr. KARMAZIN. Now I know what you—that’s helpful. So I believe in what we have said, we have described our service and we 

described that our service has content that is unique to Sirius and 

unique to XM, and then it has other channels that are substantially similar. So as an example, today we have the NFL and XM 

has Major League Baseball. That’s different. Both of us have CNN 

News and Fox News. That’s included in those 75 channels. What 

we have said, and I think what your aide did not give you, was we 

said eventually longer term what we might have is when there is 

a radio that would enable the service to be able to pick up both so 

that you don’t need to have Fox News on both services, that we 

would have the ability to replace that duplicative programming 

with additional niche new programming, and that’s the context 

that that was discussed. 

The CHAIRMAN. At the present time, your coverage is on 48 

states but not Alaska and Hawaii. When you do merge, will the 

coverage be by terrestrial means or by satellite? 

Mr. KARMAZIN. Senator, currently our configuration of XM and 

Sirius satellite provides for coverage of the 48 states and not full 

coverage of Hawaii and Alaska. Part of our service, so if we looked 

at our license, our service provides that as a national service that 

we also have terrestrial repeater networks, and that we are prepared to commit to adding more coverage into Alaska and Hawaii 

59 

through our repeater networks, because the configuration of our existing satellite is doing whatever it can do. 

The CHAIRMAN. I was told that when you got your license that 

the exemption was on the first generation system but now we have 

new systems. Can’t you do it right now without the merger? 

Mr. KARMAZIN. Senator, we have a satellite that we are going to 

launch in 2 years that is going into the same kind of orbit that our 

current one does, and I am not aware of any exemption that was 

done—I believe that we are fully operating in accordance with our 

license as it applies to how our satellites are flying. 

The CHAIRMAN. Well, I know that it’s not travel—may we submit 

questions to all of you? And we’d appreciate if we can get your responses. 

Senator STEVENS. I have one question. Pardon me, Mr. Inouye. 

I’ve got to confess, I’m at a loss in terms of this technology. I was 

under the impression, and I think the Chairman is too, that we are 

going toward a development of a technology, that all satellite radio 

will be using that technology and there will not be the difference 

that would require a merger, you would have available that technology to anyone that wants to come in and compete in the future. 

Am I correct? Are we correct? 

Mr. KARMAZIN. No. I think what we are saying is the same thing. 

I don’t think we are in disagreement. We are saying that individually both companies are flying satellites and putting in terrestrial 

repeater networks. Putting in terrestrial repeater networks into 

low density population markets is a very very costly thing for a 

company to do. What we have said is that again, part of the synergy that we would get as a result of this merger is that we are 

prepared to take the cost and spend the money to put these terrestrial repeaters in so that people in more rural and less urban areas 

will be able to pick up the service. And by the way, it should be 

indifferent as to whether or not the consumer is getting it from the 

satellite or from the terrestrial repeater networks. They are all 

part of our national service and license. And I can also assure you 

that any additional satellite, any additional receivers and terrestrial repeaters that are put into your respective states would obviously be fully licensed in accordance with any local laws as well as 

the FCC rules. 

Senator STEVENS. I wasn’t clear then in my question. My question is, you currently have one technology base for one satellite provider and another for the other. You have to have separate sets to 

get them now. I’m led to believe that those are going to merge and 

that future satellite radio providers will have the identical technology. You’re going to bring that about by reforming what you 

have now. Am I correct that if you merge, a future competitor 

would be able to utilize this same technology? 

Mr. KARMAZIN. I don’t know who that future competitor is. 

Senator STEVENS. I don’t either. But I want to know, is the technology available to the public once you merge? 

Mr. KARMAZIN. Senator, I apologize, but I’m not quite clear I understand what your point is or what your question is. Is it that if 

our two companies merge, if our companies are the way they are 

today and after our companies merge we are going to operate the 

same kind of satellite and terrestrial repeater network as we did 

60 

before the merger. Nothing is changing, and we talked about that, 

and the reason is that we don’t want to make these receivers not 

able to pick it up. What we have committed to is that and the reason that we have not expanded our coverage, you know—I mean, 

am I not making it clear? 

Senator STEVENS. I’m not making it clear, I guess. When we developed radio, we developed a basic concept and all radios use that 

same technology. Now with satellites we have one set of receivers 

per provider, and another station has another. Which means that 

if you put them into an automobile, you’re going to take one or the 

other, right? After you merge, you’ll have one. You’ll be using one 

system once you merge, is what I understand. Is that system going 

to be patented so that it would not be available to another competitor or is it going to be in the public domain, as the radio technology was once it was developed? 

Mr. KARMAZIN. The systems that satellite radio has, because it’s 

a subscription service, are proprietary. So it’s not like somebody 

else can just put in a radio without paying us the $12.95 to be able 

to pay for the subscription service. So you’re dealing with a proprietary network that exists in the case in each of the satellite radio 

companies, and that’s not something that some manufacturer can 

say, OK, I know what I’m going to do, I’m going to just put in a 

radio that’s going to be able to get satellite radio and bypass our 

subscription service. 

Senator STEVENS. My friend sitting next to you 30 years ago 

dealt me a straight royal flush in a five card stud game. Let me 

ask him, do you understand what I’m trying to say, Russ? 

Mr. WITHERS. Yes, I do, Mr. Vice Chairman That hand was 

meant for me and you just happened to be sitting in my old seat 

at that time. That’s what happened. 

As I understand the question, you’re asking after the merger, 

will the two noncompatible, like VHS and Beta, be thrown to one. 

And the answer is, and if you had heard the analyst talk about it 

earlier, at a later date that is their ultimate goal. But right now, 

and I don’t know how far their ultimate goal is, but I would say 

10, 15 years, you will have the two existing systems. And I hate 

to be speaking for Karmazin and Parsons, but I’ll do it. The two 

existing systems that are there will have to be maintained; otherwise, it will not have the subscriber bases because all the sets out 

there are compatible each only to its own self. 

The fallacy, or the part that I don’t think that you have understood completely yet, and that’s not a put-down, I just understood 

it today for the first time, is that 25 megahertz of spectrum is all 

that’s available for the national satellite radio service. They do not 

intend to give back half of that when they merge. The monopoly 

national radio company will use all 25 megahertz, not half, and 

therefore there can be no room for another competitor. So it doesn’t 

make any difference about the interoperability of a radio or the fact 

that they are going to pay them a fee to use their radio. There will 

be no space for a competitor. 

Senator STEVENS. That I didn’t understand. Thank you. Thank 

you, Mr. Chairman. 

The CHAIRMAN. Well, with that, we’ll be submitting questions 

and I hope we can get responses. I’d like to thank the panel. It was 

61 

a very interesting morning. I hope we can make some decision, but 

thank you very much. And with that, the hearing is adjourned. 

[Whereupon, at 12:01 p.m., the hearing was adjourned.] 

Æ