Justice Department Will Not Challenge Satellite Radio Merger

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The proposed merger of XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. will not face an antitrust challenge from the Department of Justice Antitrust Division.

The Antitrust Division announced on March 24 that it closed its investigation into the proposed merger of the satellite radio companies because the evidence did not demonstrate that the proposed merger was likely to substantially lessen competition. The transaction remains subject to Federal Communications Commission approval.

The Antitrust Division said that the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers. The Justice Department cited a lack of competition between the parties in important segments even without the merger and the competitive alternative services available to consumers as reasons for the parties' inability
to increase prices.

In addition, technological change is expected to make the alternative services increasingly attractive over time. The Justice Department also noted the existence of efficiencies that could benefit consumers.

The Antitrust 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”

Two Distribution Channels

According to the announcement, XM and Sirius sell satellite radios and service primarily through two distribution channels: (1) car manufacturers and (2) mass-market retailers. XM and Sirius have entered into sole-source contracts with all the major automobile manufacturers through 2012 or beyond.

XM, identifies itself as the leader in satellite-delivered entertainment and data services for the automobile market through partnerships with General Motors, Honda, Hyundai, Nissan, Porsche, Ferrari, Subaru, Suzuki and Toyota is available in 140 different vehicle models for 2008. The Antitrust Division concluded that, as a result, there is not likely to be significant competition between XM and Sirius for satellite radio equipment and service sold through
the car manufacturer channel for many years.

While XM and Sirius would have competed with one another for the foreseeable future in the retail channel, the Antitrust Division determined that the market was not limited to the two satellite radio firms. Thus, the combined firm could not profitably sustain an increased price to satellite radio consumers.

The parties had contended that they competed with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players, and audio offerings delivered through wireless telephones. The Antitrust Division also explained that efficiencies flowing from the transaction likely would undermine any concern that the combined firm might be able profitably to increase prices in the mass-market retail channel.

The March 24 announcement appears here on the Department of Justice website.