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.
In fact, XM and Sirius really offer two services. One is music programming. The other is the delivery of that programming via satellites and ground stations. Most of their customers buy the package, but not all. I get limited XM service as part of my DirecTV subscription, and in the future one can imagine cellphone operators and cable companies and maybe even old-fashioned radio stations contracting with XM or Sirius for programming. A merger would reduce their choice of suppliers.
In the same way, XM and Sirius are engaged in furious bidding wars to get different auto companies to install their systems as standard features and options. Obviously, that kind of competition will disappear after a merger -- in fact, the companies say explicitly that would be a benefit of the merger. At the same time, it works to the detriment of car buyers.
As for consumer choice, the companies argue that by eliminating duplicative folk channels and '80s rock channels, the merger will give them the money and bandwidth to launch even more specialty channels. Of course, we have no assurances of that. And as anyone with 500 channels of cable knows, there is a diminishing return to that kind of "variety." My hunch is that music lovers would be better off if XM and Sirius continued to compete by providing the best and most innovative jazz channels, for example, than offering me only one jazz channel along with another specializing in East European folk dances.
Moreover, you can bet your Gilbert Arenas game jersey that XM-Sirius would try to use its new clout and financial resources to outbid competitors for the exclusive audio rights to major sporting events, including those of your local teams.
XM and Sirius are correct when they argue that we are about to enjoy a competitive free-for-all among various companies and technologies to determine which is the most effective in bringing digital music to consumers. It is a process that will foster innovation and greatly benefit consumers. But for precisely that reason, this is the wrong time to give one technology a leg up in that competition by allowing it to become a monopoly, while other companies are forced to compete on two fronts -- against other companies using the same technology, and against companies using different technologies. By approving the XM-Sirius merger, the government would be stacking the deck in favor of satellite radio.
Moreover, history suggests that one or two of the technologies will eventually prevail by proving itself more effective and efficient. And if one of the survivors is satellite radio, consumers will find themselves worse off because the government had allowed a monopoly.
What we have here, folks, is a case of two money-losing companies locked in what has become ruinous competition, from which they hope to escape by merging. It may be that, given the economics of the business, there is room for only one to survive and prosper. But if satellite radio is such a "natural monopoly," consumers will be better off if the companies are forced to duke it out until one prevails and the other dies. The antitrust laws were designed to foster competition, not to foreclose it by bailing out competitors that overpaid for talent, over-invested in plant and equipment or over-promised results to their investors.