carmel group logoCarmel Group, once a consultant to satellite radio, and now a consultant to the National Association of Broadcasters has issued yet another report against the merger. This latest report asks the question, Does The Lack Of Inter-Operable Radios Mean Less Competition And Monopoly Power?"

Jimmy Schaeffler theorizes that the lack of an inter-operable radio has happened in part because the companies had barriers that prevented them from wanting to produce such a radio. He feels that in the beginning XM had a competitive advantage by launching first and getting GM on board quickly. At this point it would not benefit XM to work towards an interoperable device because they had a distinct advantage. As Sirius developed, Schaeffler points out that Sirius obtained superior content across the board, and that a shift existed where Sirius began to have an advantage over XM, and that now Sirius would not want to have an interoperable device.

In theory this argument has merit. When one company has an advantage, they do not want to give that advantage up. However, I have always been of the belief that had interoperable devices existed in the OEM channel from the beginning that SDARS installations would have been much further along in a much more time efficient manner. I have always felt rather than having OEM exclusive deals for installations that these companies should have had marketing deals with the OEM's. I feel that satellite radio would be much stronger today had OEM's not had to place their bets on one company or the other, but instead were able to support SDARS as a whole, and work marketing deals with each company.

Schaeffler poses some interesting theories, but in the end it is an opinion. Some things he states I agree with, and others I do not. I will outline his thoughts and mine below:

Schaeffler states that Sirius and XM compete strongly for current subscribers.

I disagree with this theory. Existing subscribers do not typically cross over from one service to the other. Sirius and XM have presented this at various times during the merger process. Additionally, you do not see advertising encouraging a switch, nor do you see devices that would facilitate a switch heavily advertised. For example, devices to switch factory installed radios from one service to the other exist, but are not heavily marketed to consumers.

Schaeffler states that Sirius and XM compete for new subscribers.

This I agree with. The bulk of these companies marketing efforts are geared towards new subscribers. In fact, marketing to existing subscribers is virtually non-existent except on the companies respective websites.

Scaeffler contends that Sirius and XM dragged their feet on developing an inter-operable radio because it would take away a barrier for consumers to switch between services.

To an extent this argument may be right, but how extensive is the barrier to switching? Receivers from either company are available for under $50 new, and can be had for a song on EBay. These "barriers" are not what hold people back from switching, because the are not really very substantial. A consumer can switch with relative ease if they want to. I myself have had both services and it was not an expensive proposition to do it. In the end I preferred toe content on one service over the other and now subscribe to one service.

The inter-operable debate can go on and on. The failure in this issue rests on the FCC, not Sirius and XM. The FCC mandated something without enforcement, and even to this day has not rendered a decision as to whether the companies have complied with the mandate. For their part Sirius and XM have stated that they have complied. The FCC has not developed an answer. Schaeffler did not point this out in his article, instead opting for language that makes Sirius and XM seem like the party doing wrong.

The fact of the matter is that there were times in SDARS history were either company would receive less benefit from an inter-operable device. However, if one were to look at the issue, there is a strong argument that an interoperable device in OEM's would have been healthy for both companies because the penetration curve of SDARS would have ramped up much more quickly.

The issue at hand has less to do with an ill advised mandate from the past. The issue is whether consumers will benefit from a merged company. In my opinion they will. In my opinion consumers would also benefit from a dual mode or inter-operable receiver. Whether that is financially feasible as stand alone entities has not been determined.

SDARS makes up 5% of the radio market. While growth has been good, the penetration into the audio entertainment landscape thus far is quite small. If a merger brings consumers better service, what else is there to debate?

Position - Long Sirius, XM