• by Erik Sass  @eriksass1, March 22, 2007

Executives at Sirius Satellite and XM expected to take some heat over their proposal to merge the two companies. But as Senate hearings proceed, they're probably worried their plan may burn up on re-entry. The central issue: whether the proposed merger would benefit consumers as well as the companies themselves.

The most recent player to voice doubt is Sen. Herb Kohl (D-Wis.), the chairman of the U.S. Senate's antitrust subcommittee. He advised Sirius representatives on Tuesday of his concerns. "We have real worries that what may be a fabulous monopoly for you will be a real bad deal for consumers." While Sirius and XM trumpeted the benefits from a corporate perspective--chiefly lowering costs--the companies have been slow to detail benefits for ordinary subscribers.

Kohl also dismissed the main financial justification for the merger--a changed media landscape and added competition means the restrictions in place when the companies were founded should no longer apply. "Over-the-air radio does not come close to duplicating the impressive array of program offerings of satellite radio ..." he noted. "It also appears to us that iPods and other new technologies are either too new, too expensive or too different from satellite to be included in the same market definition."

On Wednesday, Sirius countered criticism.

If it's allowed to merge with XM, Sirius revealed plans to offer customers a discount, following up on a more general promise of "lower prices" in a recent filing with the Securities and Exchange Commission. The adjusted subscription terms would also allow subscribers a choice: They could receive fewer channels for a lower fee--although not on an a la carte basis. The new offer goes further than Sirius CEO Mel Karmazin's previous promise not to raise rates after a merger.

In addition to skeptical legislators, the merger faces opposition from other powerful players in the industry, including the National Association of Broadcasters, representing terrestrial radio stations that compete with satellite.

On March 7, NAB president Peter Smyth testified that Sirius and XM share "a track record of misrepresenting their intentions, not following the rules that have been established, and failing to correct their past transgressions," pointing to technical matters involving receivers and ground repeaters.

Smyth also predicted that "subscription prices will rise, because there will be no competition to restrain monopoly rates ... Put simply, private corporate interests will benefit, but the public will suffer." Finally, he repeated earlier NAB statements to the effect that the companies' losses are due to unwise business practices, including huge salaries to lure on-air talent like Howard Stern and Oprah.

The proposed merger is also being closely examined by the Consumers Union, the Consumer Federation of America, and other public-interest groups that have called for aggressive regulation by the FCC.