For those that have been invested in Sirius XM for some time, the name WCS Coalition will bring back memories of fantastic legal debates throughout the merger process of Sirius XM. Prior to the satellite radio merger Sirius, XM, and the WCS Coalition traded barbs many times. The largest issue was always spectrum interference between the services. The WCS spectrum sits right next to that of Sirius XM. At one point XM Satellite Radio had brokered a deal to acquire the WCS spectrum, but ultimately that deal fell through.
The WCS Coalition has been trying to get itself off of the ground for quite some time. The valuable spectrum has many potential uses, but implementing them requires FCC approval, as the use of this spectrum has limitations. It should come as no surprise that the WCS Coalition has weighed in on the proposed removal of a pricing cap on the Sirius XM service. What is interesting however, is that they do not seem to be completely opposed to it. Of course WCS has their own motives in how they comment.
In a comment to the FCC WCS noted,
"Although Sirius and XM offered to limit price increases for three years, the Commission was fearful that the marketplace would not sufficiently evolve during that period to protect consumers. The Commission thus warned Sirius and XM that “to ensure that no longer-term harms will result from the transaction,” it would seek public comment on whether the price cap regime should be extended six months prior to the expiration of the commitment period, and the Commission conditioned its approval of the merger accordingly."
The paragraph does a decent job of laying out the reasoning for the price cap. The question now is whether the media landscape has shifted enough to alleviate FCC concerns and give Sirius XM unchecked power in their pricing.
WCS seems to feel that while Internet radio has potential to be competitive that the media landscape is not quite to the point of being enough of a competitor to constrain Sirius XM. WCS stated,
"In recently urging the Commission to permit the price cap to expire on July 28, 2011 as scheduled, the merged company,Sirius XM Radio, Inc. (“Sirius XM”), asserted that its marketpower now is constrained by Internet-based services, such as Pandora, Rhapsody, Slacker, Lastfm and iheartradio, that can be delivered wirelessly to automobiles, where the majority of consumers listen to Sirius XM.8 The WCS Coalition certainly believes that, if sufficient mobile broadband capacity is available to support the wireless delivery of Internet-based services to automobiles, those services will be perceived as competitive by consumers and Sirius XM’s ability to increase prices will be disciplined."
What we see here is WCS's proposed solution. Allow them to move forward and the competitive landscape will be strong enough to keep Sirius XM in check. Their next comment tells the story:
"America is in the midst of a spectrum crisis, with demand for mobile wireless bandwidth outstripping supply.9 Indeed, the National Broadband Plan recognized the need for the reallocation of 500 MHz of spectrum for broadband within the next 10 years, with 300 MHz between 225 MHz and 3.7 GHz to be made available for mobile use within 5 years.10 Not surprisingly, the National Broadband Plan called for the Commission to resolve the regulatory issues in WT Docket No. 07-293 and IB Docket No. 95-91 so as to allow Wireless Communications Service (“WCS”) licensees to provide mobile broadband service over at least 20 MHz of the 2.3 GHz band, consistent with the WCS mobile allocation adopted in 1996."
Throughout the document WCS points out the various stages of the battle between WCS and Sirius XM. In the end however they do not totally oppose a price increase at some time in the future. They would seem to be supportive of Sirius XM's initiatives IF the FCC moves forward on measures that would allow WCS to move forward with their own plans.
"Given this current state of affairs, it would be premature for the Commission to lift the price cap that was put in place to protect consumers against unwarranted Sirius XM price increases. Rather, the WCS Coalition respectfully suggests that the Commission retain the existing price cap on an interim basis, and defer any decision to lift or modify the price cap until the Commission can address the pending petitions for reconsideration in WT Docket No. 07-293 and IB Docket No. 95-91. By first assuring that spectrum will be available for the delivery of Internet-based audio services to automobiles and other places where consumers listen to Sirius XM, the Commission will then be able to lift the price cap without fear of anti-consumer impacts"
The WCS argument is quite interesting and has some merit. Of course it is self serving, but what else would you expect? For satellite radio investors, the biggest items to note are as follows:
- WCS see's the viability of Internet Radio as a force in the media landscape provided the bandwidth is sufficient.
- WCS has bandwidth that could remove strain from the systems. The FCC is hot onto the issue of the need for bandwidth.
- WCS has been dealing with the FCC for quite some time, thus they are not an anonymous commenter coming out of nowhere. The opinions of WCS carry some weight and will garner serious consideration.
What the WCS Coalition is doing is trying to interconnect their issues before the FCC with this issue. The strategy is a good one, as it brings things front and center in stage that is open and in the midst of an FCC decision. There are some that feel that the FCC price cap removal is a virtual certainty. I am not convinced of that. That will not preclude Sirius XM from garnering more revenue in other ways. New services they add, such as Satellite Radio 2.0, carry with them the ability for new pricing despite the FCC order.
Investors who want additional insight are encouraged to visit the WCS comments filed with the FCC.
Position - Long Sirius XM Radio