Ibiquity Publishes Proposed Rule For Merger
In a development that was published by the FCC today, Ibiquity has taken the next step in what could be a merger concession up for consideration. This development now takes the issue past the theoretical stage and brings us to something with more substance that all parties can consider. Ibiquity is seeking that if the merger were approved that the following rule be added to the licenses:
PROPOSED RULE
25.144 Licensing Provisions for the 2.3 GHz satellite Digital Audio Radio Service
(a)(3)(iv) Each licensee will certify no later than June 1 of each calendar year, in accordance with the dates specified below, that any newly introduced satellite receiver models that operate with the licensee’s satellite DARS system and includes the ability to receive terrestrial analog AM/FM signals, will also include the ability to receive digital AM/FM signals in accordance with the technical specifications for terrestrial digital radio specified in MM Docket No. 99-325. This requirement will be effective three years from the date of this rule for new model Original Equipment Manufactured (“OEM”) automobile receivers and one year from the effective date of this rule for new model non OEM receivers.
It would appear that the stage of concession discussion regarding the merger has matured to a point that filings are beginning to have some specificity. With this proposed rule, Sirius and XM now have a concrete and specific platform of exactly what Ibiquity is seeking. This would allow a more permanent dialogue between Sirius/XM and the FCC, and perhaps an indication of the tenor that various meetings with the FCC have taken.
While the Ibiquity proposal seems reasonable, they would in effect be getting something for nothing. Ibiquity has negotiated with some auto manufacturers, but is relying on consumer demand as the selling point, and to our knowledge has not offered up a revenue share as part of the installation agreement. If HD were to get into cars via the SDARS agreements, they would essentially get to bypass the types of arrangements that Sirius and XM took years to put into place. Whether Sirius and XMN would consider such a rule would depend on some interesting factors:
1. Who pays for the HD Radio chipset?
2. Will Ibiquity help subsidize the installation?
3. Will the car be HD capable even if the SDARS receiver is deactivated? In other words, you need to get SDARS to get HD.
While it would appear that the merger is moving slowly, filings such as this do indeed show progress. However, there is a lot to cosider. By example, if an HD chipset added $10 to the cost of an installation, the numbers we are being asked to consider add up quickly:
2009 – If there are 7,000,000 OEM installs with a $10 premium for the HD chipset, the cost is $70,000,000
2010 – If there are 8,500,000 OEM installs with a $10 premium for the HD chipset, the cost is $85,000,000
2011 – If there are 10,000,000 OEM installs with a $10 premium for the HD chipset, the cost is $100,000,000
This represents $100’s of millions of dollars if the premium is only $10 per chipset. How much is the premium in reality? $20? $30? This information is needed to consider exactly what is being placed on the table by Ibiquity. Ibiquity is looking for such a concession so that they will no longer have to spend hundreds of millions of dollars, and negotiate with OEM partners. While seeing exactly what their proposal seeks is helpful, there are still more answers that are needed. Taking away hudreds of millions of dollars in synergies is not a viable answer at this point.
Position – Long Sirius, XM
I have owned sirius stock for four years through all the pain and patience! I think that sirius should not concede to terestrial radio in any way! They have payed millions of dollars on their own,with every opposition possible from terestrial,to get with the auto manufactures,and I absolutely don`t think they deserve to get a free ride off of sattelite radio! They have a dying industry and they need to come to terms with that,they should have to go through all the pain and expense that sattelite went through on their own!