Sirius-XM Merger Would Send Wrong Signal

By Steven Pearlstein
Friday, February 23, 2007

Here's what to expect if the Justice Department and the Federal Communications Commission allow Sirius and XM to merge, creating a monopoly in the satellite radio business:

Clear Channel will start buying every radio station in America that it doesn't already own.

Apple will be able to buy any company that begins to challenge its dominance in the market for portable music players.

Comcast will begin merger talks with Time Warner Cable.

And there will be nothing standing in the way of a marriage of NBC and CBS.

All that will be possible because the government will have declared that there is so much competition between the different technologies in the market for digital material -- and the outcome of that competition is so uncertain -- that there is no reason to worry about consolidation of companies using the same technology.

This is the Powell Doctrine -- not the one about overwhelming force enunciated by Gen. Colin Powell when he was chairman of the Joint Chiefs of Staff, but the one promulgated by his son, Michael Powell, while he was chairman of the FCC. The younger Powell was guided by this doctrine in giving the green light to consolidation in almost every corner of the telecommunications sector. In the one instance he deviated from that position -- blocking the merger of EchoStar and DirecTV -- it was narrowly, on the ground that there weren't enough broadband competitors in many rural areas.

There is something to the idea that antitrust regulators should use a lighter touch, and exercise greater humility in predicting what might happen, during periods of rapid technological change. But even discounting for that, there are plenty of reasons for the government to block an XM-Sirius merger, which would create a monopoly.

Let's start with the obvious, which is that that while there are now multiple sources for digital music, they aren't perfect substitutes for each other.

I like radio, my wife will listen only to CDs, my daughter prefers her iPod, and my son will enjoy the convenience of getting music on his cellphone when that service finally takes off. Any of us could switch if the other channels offered lower prices or superior quality, but the differences would have to be pretty significant to overcome habit and personal preference.

Moreover, people are somewhat locked into their current choice by the investment they've made in equipment or contracts with companies. In that way, too, customers are "sticky."

The different technologies also have different business models, complicating the terms of competition. Old-fashioned radio makes its money from advertising, so it is hard to see how it could discipline the XM-Sirius monopoly for raising prices. Nor could Apple, which makes its money selling devices and downloaded songs. And we don't even know yet what the business models will be for Internet radio or music over cellphones.

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