Justice Department gives go-ahead to deal

The Justice Dept. said Monday it has found no reason to block or oppose the proposed merger between the XM and Sirius satellite radio companies.

The Federal Communications Commission has yet to rule on the deal, but DOJ’s announcement is a huge victory for Sirius topper Mel Karmazin, who has repeatedly appeared before congressional committees throughout the past year and met with regulators to answer questions and parry critics’ claims that the merger would constitute a monopoly.

“After a careful and thorough review of the proposed transaction, the (DOJ antitrust) division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers,” said assistant attorney general Thomas O. Barnett. “We found we should not challenge the transaction.”

Barnett said Justice Dept. lawyers rejected arguments made mostly by consumer groups and the National Assn. of Broadcasters that satellite radio was a unique market and that a merger would allow creation of a monopoly that would jack up subscription rates.

“There was no evidence to support that proposition,” Barnett said.

Indeed, certain factors argued against it, such as “competitive alternative services available to consumers, technological change that is expected to make those alternatives increasingly attractive over time and efficiencies likely to flow from the transaction that could benefit consumers,” Barnett said.

Another key point that Barnett said antitrust lawyers examined was the likely effect the merger would have on current competition between XM and Sirius. He said they concluded there would be no effect, since the two satcasters don’t really compete against each other.

“Because customers must acquire equipment that is specialized to the satellite radio service to which they subscribe, and which cannot receive the other provider’s signal, there has never been significant competition for customers who have already subscribed to one or the other service,” he said.

XM and Sirius certainly compete for subscribers, particularly in retail distribution, vying for consumers to buy one company’s specific radio receivers, Barnett said. Still, he added, DOJ found that “the evidence did not support defining a market limited to the two satellite radio firms that would exclude various alternative sources for audio entertainment, and similarly did not establish that the combined firm could profitably sustain an increased price to satellite radio consumers.”

Barnett said the Justice Dept. was closing its investigation into the proposed merger without suggesting any conditions be imposed on it.

Former FCC chairman Reed Hundt said the news was a powerfully good omen for the deal. “Based on my experience, when Justice blesses a merger without conditions, it verges on the inconceivable that the FCC would stop it,” Hundt said.

Debate over the merger had become a Washington battle royale ever since Karmazin announced it more than a year ago. The NAB, several consumer groups and numerous members of Congress urged that regulatory approval be denied. About an equal number of pols as well as various organizations urged approval. Committees in both the House and Senate held hearings that often heated up when those in favor or opposed to the merger testified.

A rep for Karmazin said he would not be commenting on the announcement. But reaction from others was swift and strong.

“We are astonished that the Justice Dept. would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade,” said NAB exec veep Dennis Wharton. “To hinge approval of this monopoly on XM and Sirius’ refusal to deliver on a promise of interoperable radios is nothing short of breathtaking,” he fumed.

Added merger foe Sen. Byron Dorgan (D-N.D.): “The Justice Dept.’s approval of the merger of XM and Sirius satellite radio is another disappointing example of (the Bush) administration’s blatant disregard for the public interest with regard to media ownership. This merger will eliminate all competition in satellite radio, and it’s the American consumer that will pay the price.”

The Consumer Electronics Assn., however, “applauded the Dept. of Justice for acting in the public interest to provide clarity in the marketplace and confidence to consumers.” Consumers who have been awaiting a decision on the merger to purchase satellite radio systems “can now move forward with confidence. Now that the DOJ has approved this merger without conditions, we urge the FCC to move quickly to a decision.”

Watchdog group Public Knowledge repeated its calls for conditions on the merger, urging the FCC to exact a guarantee that the merged entity would not raise subscription prices for three years, among other demands.

Earlier this month, FCC chairman Kevin J. Martin said he has directed staff to draw up options concerning the proposed merger but that an announcement would probably not be made before the end of March.

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