Many, if not most, who I consulted with through the many months leading to the March 24, 2008, U.S. Department of Justice’s (DOJ) Sirius-XM merger-to-monopoly decision, believed it would favor the merger. But just about everyone was nonplussed by the form it took. This is because not only were there no conditions, caveats, or concerns expressed, but the rationale used to justify it was just plain bizarre. Indeed, this satellite radio decision gives new (and derisive) meaning to the words “monopoly,” “competition” and “antitrust regulation” in America.
As an analyst that has studied the telecommunications business for almost two decades, I am absolutely baffled by the nonsensical explanation employed by the DOJ in its precedent-setting approval. To use the applicants’ callous disregard for FCC rules as the basis for such approval (and as a basis to conclude SIRIUS AND XM DO NOT COMPETE AGAINST ONE ANOTHER), defies all common sense and sets a dangerous precedent for future companies that would prefer to simply buy their rival, rather than actually compete in the marketplace. Worse still, along the way, the DOJ and the companies lost sight of their most important audience: the consumer. What do I mean by this statement? The Carmel Group specifically noted in a research paper focused specifically on this topic that the lack of interoperable radios showed how the companies actually compete vigorously against one another (which was not an argument favoring the monopoly) . (See, http://carmelgroup.com/publications/white_papers_and_studies/does_the_lack_of_inter_operable_radios_mean_less_competition_and_monopoly_p/). This document was turned over to the DOJ and the Federal Communications Commission (FCC) in a most timely manner, however, at least in the former case, it apparently was either ignored or given second or third position behind Sirius’ and XM’s own in-house data, and the DOJ’s newly acquired authority to analyze and predict the future.
Beyond that, as the old adage has it, “Justice Is Blind,” but one can’t help but ask here now, Does Justice also have to not only ignore the facts, but create its own instead? Indeed, few would question – including the attorneys general of 11 U.S. states – that this extreme leap of (bad) faith on the part of the DOJ gives big business a pat square on the back, and consumers a firm kick in the behind. Moreover, this kind of a decision brings a critical part of our government to a new low. In the end, this ill-advised and ill-supported decision focused on some newly-devised, crystal-ball like DOJ version of “antitrust competition.” Per DOJ, “competition” that is “expected,” or that “might be,” is their new antitrust foundation. Ultimately, the antitrust law and the facts now take second place to the DOJ’s new role as an “analyst.” Most of us in the analyst community were not aware that Congress had just increased the DOJ’s oversight authority to not only measure the facts and the law, but to also serve as an industry analyst and consultant, tasked with determining what is in the “competitive” future, where, and how fast it will get there. Did DOJ also do its own surveys, and has DOJ been an expert following the satellite radio for many years or decades?
Probably not. Yet having stepped so far out of their legal realm in this decision, should such a compromised DOJ be allowed to further venture forth? One has to then wonder, what’s next, DOJ? Indeed, is there ANY merger that this Justice Department WOULD block? Microsoft-Google? Comcast-Time Warner? DirecTV-EchoStar? New York-California? After all, the DOJ apparently has followed closely for years and done multiple surveys on the auto and moped industry, and would it then not be logical to allow the merger of GM-Ford, because they compete with mopeds? Plus, to further the logic, GM and Ford are also enduring tough financial and competitive times, and they, too, can now look to the lessons taught by Sirius’ Mr. Karmazin and his DC team to make that same “we’re in financial trouble” argument toward merger, right? In sum, this irrational DOJ analysis makes a mockery of antitrust law and sets a dangerous precedent for future business dealings among hotly competitive companies. What Now, FCC?
Equally Important, so many of the so-called merger “conditions” that have been talked about become less and less meaningful the quicker they get jettisoned by the new monopolist. In two to five years, when the top executives of Sirius and XM have walked away with their additional millions, will they be held accountable -- or better , will their pocketbooks -- for the conditions that never worked or the conditions they ignored (like they already ignored the FCC’s interoperable mandate)? Jim Miller, a former FTC chairman who also is a real and respected analyst (one who has studied the satellite and radio industries for many years, and who has included knowledge of independent and legitimate third party surveys), suggested recently that an FCC that is truly in sync with real long-term consumer needs, would hold this merger in abeyance. Instead, the FCC needs to require Sirius and XM to finally do what they were ordered to do years ago: create and implement a common standard, interoperable radio. Once that sales data is available, i.e., data showing whether these two duopolists truly compete, then would be the time to measure the effect of this proposed merger on what the FCC claims is its key and most important constituency, i.e., the everyday consumer.
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Jimmy Schaeffler has served as a consultant to numerous prominent companies and trade groups. He has closely studied the satellite radio industry since before its inception in 1997. Several of his anti-merger documents can be seen and researched (including surveys and studies done by The Carmel Group, which were presented to the DOJ) at www.carmelgroup.com
