Corporate Welfare for XM/Sirius Competitors?

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After a year's delay, Federal Communications Commission (FCC) Chairman Kevin Martin blessed Sirius Satellite Radio’s buyout of its competitor, XM. Martin is just one of five FCC Commissioners, though. The other commissioners have yet to weigh in. The Justice Department (DoJ) has already given conditional permission.

Now the U.S. Senate is getting in on the act. In a letter to Chairman Martin, Sens. John Kerry (D-Mass.), Claire McCaskill (D-Mo.), and Ben Cardin (D-Md.) say they worry that the merger would “fail to provide meaningful competition.” Really it is their smokestack-era antitrust concerns that are a threat to open competition.

Yes, the merger would create a “monopoly” in satellite radio, but a merged Sirius-XM will still face fierce competition. AM and FM radio, podcasts, mp3 players, and cell phone programming all compete against satellite radio for listeners. In the future, mobile Internet radio with programmable stations could easily threaten satellite radio, which is not programmable.

“Regulation” by competition, not by the FCC and DoJ, is what is needed.

A big reason Sirius and XM want to merge is that they stand to save hundreds of million dollars in costs (Oprah and Howard Stern are expensive). Those savings will make satellite radio more competitive.

That competitive challenge is precisely why traditional over-the-air broadcasters launched a fierce lobbying and advertising campaign opposing the merger.

Why complain if a rival's merger will result in that competitor charging higher prices and degrading its services? A harmful merger would be cheered. Competitors’ opposition reliably signifies that a merger will benefit consumers.

The great irony of antitrust regulation is that, in the name of fostering competition, the laws themselves actually hobble competition, undermining consumer choice.

Antitrust authorities’ ritual holdup of ordinary business deals is bad enough. But whenever two companies of sufficient size merge, they must satisfy conditions so that the FCC and Justice Department can create pretended relevance for themselves.

One condition of appeasement for the Sirius-XM merger is that they hand over 8 percent of their channels to noncommercial and “public service” programming. Internet radio does not face this requirement.

Another condition is that they freeze their prices for three years. Meanwhile, their competitors are still free to set their own prices to reflect changing market conditions.

A third condition is that XM-Sirius must introduce á-la-carte subscription models. If this were economical, they would have done this already.

This is pure protectionism under another name. Restricting satellite radio unfairly benefits its competitors--yet another instance of antitrust regulations reducing competition.

Post-merger business strategies and decisions lie with people not even involved with either firm. Those calls should belong to managers and shareholders. They answer to consumers. If the merger does not give their customers a good product, they stand to lose everything. They have every incentive to make the deal work.

Regulators, by contrast, do not answer to consumers. If they make the wrong decision, they lose nothing. If they make the right decision, they gain nothing. The incentives to make the right call are simply not there.

FCC commissioners and DOJ appointees are political actors. Their decisions are thoroughly politicized. They have no real incentives to ensure an open, competitive market. Their goals are to keep bad press to a minimum, and to increase their budgets by appearing to be “doing something.” The FCC’s indecency rulings, for example, are notorious for shifting with the political winds.

This is hardly conducive to ensuring an open, competitive market.

Antitrust regulations did not work in the smokestack era, and they do not work now. Today, the temptation is great for competitors to go to Washington and cry foul instead of, well, competing.

The media market is more competitive than ever. Not too long ago, broadcast radio was the only game in town. That has changed with the advent of satellite radio and the Internet. Old radio does not like this, but broadcasters can still buckle down and compete. What a shame that instead of bettering their product they try to kneecap their competitors.

Wayne Crews is vice president for policy at the Competitive Enterprise Institute (CEI) in Washington, D.C. and Ryan Young is a Fellow at CEI.

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