On March 24, the U.S. Department of Justice
(DOJ) issued its approval of Sirius Satellite Radio‘s $5
billion buyout of rival XM Satellite Radio, saying that a
merger of the two satellite stations is unlikely to hurt competition or
consumers. The DOJ informed the companies that it has ended its investigation
into the pending merger without taking any action to block the
transaction. Sirius and XM each obtained stockholder approval for the deal
in November 2007, but it still awaits the green light from the FCC. 

“After a careful and thorough review of the proposed transaction, the
Division concluded that the evidence does not demonstrate that the proposed
merger of XM and Sirius is likely to substantially lessen competition, and that
the transaction therefore is not likely to harm consumers,” said the DOJ
in a statement regarding its approval. “The Division reached this
conclusion because the evidence did not show that the merger would enable the
parties to profitably increase prices to satellite radio customers for several
reasons, including: a lack of competition between the parties in important
segments even without the merger; the competitive alternative services
available to consumers; technological change that is expected to make those
alternatives increasingly attractive over time; and efficiencies likely to flow
from the transaction that could benefit consumers.”

The Justice Department found in its research that the two companies compete not
just with each other but also with other forms of radio and entertainment, and
it said that although the companies competed to attract new subscribers, there
has never been significant competition between them for customers who have
already subscribed to one or the other service. Also, competition for new
subscribers is likely to be substantially more limited in the future than it
was in the past.

“The Division’s investigation indicated that the parties are not likely to
compete with respect to many segments of the satellite radio business even in
the absence of the merger. Because customers must acquire equipment that is
specialized to the satellite radio service to which they subscribe, and which
cannot receive the other provider’s signal, there has never been significant competition
for customers who have already subscribed to one or the other service,”
the DOJ explained. “For potential new subscribers, past competition
has resulted in XM and Sirius entering long-term, sole-source contracts that
provide incentives to all of the major auto manufacturers to install their
radios in new vehicles. The car manufacturer channel accounts for a large and
growing share of all satellite radio sales; yet, as a result of these
contracts, there is not likely to be significant further competition between
the parties for satellite radio equipment and service sold through this channel
for many years.”

The DOJ continued, “In the retail channel, where the parties likely would
continue to compete to attract new subscribers absent the merger, the Division
found that the evidence did not support defining a market limited to the two
satellite radio firms that would exclude various alternative sources for audio
entertainment, and similarly did not establish that the combined firm could
profitably sustain an increased price to satellite radio consumers. Substantial
cost savings likely to flow from the transaction also undermined any inference
of competitive harm. Finally, the likely evolution of technology in the future,
including the expected introduction in the next several years of mobile
broadband Internet devices, made it even more unlikely that the transaction
would harm consumers in the longer term. Accordingly, the Division has closed
its investigation of the proposed merger.”

A decision from the FCC still awaits, and Chairman Kevin Martin
signaled on March 20 that the agency is close to a conclusion, telling
reporters that he asked the staff to draft various options. However, he has said
previously that there is no timetable for the decision.