bank of americaIn a report issued today (you can read report excerpts and comment on it in the Sirius Buzz Forums), Banc of America's Johnathan Jacoby cites "DC Contacts" as being bearish on the merger between Sirius and XM. The report cites the main reason for the bearish outlook is that the "DC Contacts" felt that Sirius and XM offered a weak Response to the proposed rulemaking change with the FCC, and that the NAB was citing an argument of "If they can do it we should be able to do it."

This first item to note is that the Notice of Proposed Rule Making (NPRM) argument is a very straight forward argument. How the "DC Contact" could arrive that Sirius and XM's argument was "weak" is a bit puzzling. Unlike the other aspects of the merger, such as the competitive landscape, the NPRM is a pretty cut and dry issue. The FCC made a rule when satellite radio was launched. Sirius and XM simply argue that it is within the power of the FCC to change or modify that rule if they decide that it is in the best interest of the public to do so. It is really that plain and that simple. The FCC will refer to the other reply comments regarding the competitive landscape, etc. to determine what is in the best interest of the public. The battle ground is what is in the public interest, and NOT changing the rule. The "DC Contacts" should be well aware of this. If it is decided that the merger is in the best interest of the public, you can rest assured that the original rule will be changed. Thus, Sirius and XM did not "brush off" the NPRM issue as BOA's "DC Contacts" insinuate. They merely illustrated that such a rule change is within the power of the FCC. This point does not require a long and drawn out debate.

The second item to note is the "If They can Do It We Should Be Allowed As Well" argument. Simply wishing for something will not bring it to pass. Media ownership and consolidation is an issue that has to come before the FCC just like other issues. If terrestrial broadcasters want more consolidation, they need to prove that such consolidation is in the public interest. Interestingly, consumer sentiment towards terrestrial radio consolidation that has happened to date is not very high. Instead of diversifying content, and expanding what is available on the air, consumers got homogenized content laced with over 20 minutes of commercials. If terrestrial radio wants more consolidation, they need to demonstrate that itr is in the public interest to do so. They can go before the FCC just like Sirius and XM have.

The fact that if approved this merger will set a precedent for media ownership is true, but only to certain limited aspects. Sirius and XM are offering various concessions with their merger. Will terrestrial broadcasters do the same? Will they now support initiatives such as low powered FM as a concession? What are the plans for the HD signals? Terrestrial radio is free radio. The only real benefits that terrestrial radio can offer is in their content. Thus far, with existing consolidation, terrestrial radio has brought less diversity and more commercials. Terrestrial radio will need to demonstrate consumer benefit to use a satellite radio merger as a president.

All in all, the "meat and potatoes" of the merger happened with the first set of filings, not with the NPRM debate. Jacoby's argument that the NPRM cycle lowers the likelihood of a merger to less than 30% seems odd considering that most merger watchers see that the NPRM does not even come into play unless the first cycle about the competitive landscape, etc. is seen as favorable for the merger. If that happens, there are very few who would argue that the FCC does not have the power to change a rule they enacted.

Position - Long Sirius, Long XM