FCC Approves XM Sirius Merger

July 25, 2008. The Federal Communications Commission (FCC) issued a short release on Friday night, July 25, 2008, announcing the FCC's "approval of the XM-Sirius Merger this evening by a 3-2 vote".

The FCC did not release its order approving the merger. These orders are typically long and detailed documents that approve transactions, but impose numerous restrictions upon the parties to the transaction. For example, the AT&T-BellSouth merger order was 181 pages.

XM and Sirius announced their merger plans on February 19, 2007. See, story titled "XM and Sirius Announce Plans to Merge" in TLJ Daily E-Mail Alert No. 1,540, February 20, 2007. They formally submitted the application to the FCC on March 20, 2007.

On March 24, 2008, the Department of Justice's (DOJ) Antitrust Division announced that it will not challenge the merger of XM and Sirius. It imposed no conditions. See, story titled "DOJ Won't Challenge XM Sirius Merger" in TLJ Daily E-Mail Alert No. 1,736, March 25, 2008.

The leading opponents of the XM Sirius merger were the National Association of Broadcasters (NAB), and terrestrial radio broadcasters, who are facing increasing competition in music and other audio entertainment delivery, and seek to limit that competition. A single satellite broadcaster might be a financial viable competitor.

The NAB has argued that the relevant market is not audio entertainment (including terrestrial radio, internet radio, satellite radio, iTunes and other download services, and CDs), but rather satellite radio. The DOJ rejected the NAB's antitrust analysis.

The NAB's Dennis Wharton stated in a release late on July 25 that "Today's vote certainly comes as a disappointment to NAB. We continue to believe that consumers are best served by competition rather than monopolies."

Kevin Martin FCC Chairman Kevin Martin (at right) stated in the FCC's release that "The merger is in the public interest and will provide consumers with greater flexibility and choices. Consumers will enjoy a variety of programming at reduced prices and more diversified programming choices. It will also spur innovation and advance the development and use of interoperable radios, bringing more flexible programming options to all subscribers."

The FCC's release does not state that the three members voting for approval, subject to conditions, were Martin, Robert McDowell, and Deborah Tate, while the two voting against approval were Michael Copps and Jonathan Adelstein.

This FCC proceeding is MB Docket No. 07-57. See also, the FCC's web page for this merger. XM is represented by the law firm of Wiley Rein. Sirius is represented by the law firm of Latham & Watkins and others.

Conditions Imposed Upon the Merged Entity. The FCC has not released its order. It has not even released a brief summary of the order. It has not disclosed the conditions to be imposed upon the merged entity.

However, XM and Sirius sent a letter [PDF] to the FCC on June 13, 2008 (and following it up with ex parte communications) in which it listed the "voluntary commitments" that should be imposed upon it.

These include offering customers certain a la carte programming options, offering the ability to receive the best of both Sirius and XM programming, offering the options of selecting either mostly music, news, sports, or talk programming, and offering discounted family friendly programming.

The proposed "voluntary commitments" also include setting aside "four percent of the full-time audio channels on the Sirius platform and on the XM platform, respectively, which currently represents six channels on the Sirius platform and six channels on the XM platform, for noncommercial, educational and informational programming".

The proposed "voluntary commitments" also include this open equipment commitment: "The merged company will permit any device manufacturer to develop equipment that can deliver the company’s satellite radio service. Device manufacturers will also be permitted to incorporate in satellite radio receivers any other technology that would not result in harmful interference with the merged company's network, including hybrid digital (HD) radio technology, iPod ports, internet connectivity, or other technology."

The proposed "voluntary commitments" also include this interoperabilty commitment: "Within one year of the consummation of the merger, the combined company will offer for sale an interoperable receiver in the retail after-market."

The proposed "voluntary commitments" also include pricing commitments.

Gigi Sohn, head of the Public Knowledge, stated in a release that "It appears as if the Commission has adopted in some form all four of the conditions we have been seeking for the XM-Sirius merger. We had originally said that there should be some form of a la carte choice in programming, a three-year price freeze, a set-aside for non-commercial programming and an open-device requirement so that any manufacturer could build a device to receive programming from the combined company."

See also, Sohn's notice [PDF] of three ex parte telephone communications on July 23 with FCC Chairman Kevin Martin's office. And see, notice of ex parte communication [2 pages in PDF] by Sohn and representatives of the Media Access Project (MAP) with Commissioner Jonathan Adelstein's office regarding open device requirements, enforcement issues and the non-commercial set-aside.

Recent Filings with the FCC. Sen. Ted Stevens (R-AK) sent a letter, FCC receipt stamped July 23, urging the FCC to impose as a condition of approval a mandate that all satellite radio receivers also include HD radio reception capability.

On July 14, David Rehr (NAB) sent a comment to the FCC, received on July 21.

On July 18, Lawrence Sidman and James Holden of Paul Hastings submitted a comment [PDF] for Clearchannel Communications regarding conditions to be imposed on the merger, and enforcement of those conditions.

On July 22, Paul Sinderbrand of Wilkinson Barker Knauer submitted a comment [8 pages in PDF] for the Wireless Communications Service (WCS) Coalition regarding proposed rules for governing WCS and Satellite Digital Audio Radio Service (SDARS) coexistence.

He wrote that "the WCS Coalition wants to assure both that the final rules adopted in the above-referenced rulemaking proceedings permit that viable operation of WCS-based mobile broadband systems, and that no action is taken in connection with the merger, or any associated enforcement proceeding, that inadvertently permits the operation of terrestrial SDARS repeaters in a manner that causes undue interference to WCS."

The FCC adopted and released two notice of proposed rulemakings (NPRMs) in December of 2007 regarding service rules for the WCS and for terrestrial repeaters used in conjunction with the SDARS. These items are FCC 07-215 in WT Docket No. 07-293 and IB Docket No. 95-91. See, notice in the Federal Register, January 15, 2008, Vol. 73, No. 10, at Pages 2437-2440.

TLJ Comment on Merger Review Process. This outcome was to be expected. The FCC does not issue orders denying major merger requests. Instead, it has a long record of delaying consummation of transactions while it extracts concessions from the parties.

Even in the Echostar Directv 2001-2002 transaction review, the FCC did not issue an order denying the application. Rather, it issued an order [134 pages in PDF] designating the application for hearing -- a further dilatory tactic. (That order was FCC 02-284 in Docket No. 01-348.) And, leading consumer advocacy groups condemned that disposition. See, story titled "FCC Declines to Approve EchoStar DirectTV Merger" in TLJ Daily E-Mail Alert No. 528, October 11, 2002.

The FCC's investigations and analyses in merger reviews are essentially in the nature of antitrust merger reviews. The FCC lacks statutory authority to conduct these reviews. Rather, federal statutes commit these functions to the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC). The FCC does have authority to approve applications to transfer communications licenses. Shortly after passage of the Telecommunications Act of 1996, the FCC began treating certain license transfer applications as if they were antitrust proceedings. The mimicking of DOJ/FTC antitrust proceedings provided the FCC a reason for demanding large amounts of documents and information, and to delay. The FCC took over sixteen months between the filing of XM's and Sirius' application, and the just announced approval.

For large companies seeking to merge, time is of the essence. The FCC can delay with little consequence for its policy goals, while delay is damaging to the merging parties. Hence, the FCC's power derives from its leveraging of its license transfer authority to conduct antitrust merger proceedings, combined with the participants' need to consummate their mergers. The FCC's power also derives in part from the fact that it has considerable authority over regulated entities that are repeat players before the FCC. The FCC does not treat license transfer applications of non-repeat players as antitrust proceedings.

Hypothetically, were the FCC to issue an order denying an application, that would be a final order of the FCC subject to judicial review. Merging parties cannot seek judicial review of a dilatory federal agency. Nor can they seek judicial review of FCC approval orders, because the FCC first extracts consents.

If the FCC were to issue an order denying a merger application, it might be challenged, and a Court of Appeals might overturn that order. The legal basis might be that the FCC lacks antitrust merger review authority. This is an outcome that the FCC seeks to avoid.

It should be noted too that the FCC has yet to adopt either substantive or procedure rules governing its merger reviews. Were it to do so, there would be final orders subject to judicial review.