• by Erik Sass  @eriksass1, January 11, 2008

The proposed merger between XM and Sirius just got a little more complicated.

In a letter of complaint sent to the Federal Communications Commission in late December, HD iBiquity's lawyers proposed that the merger should not be allowed to go forward unless all new satellite radio sets are also made compatible with terrestrial HD radio.

Even more ambitious, the complaint calls for all exclusive partnerships between the satellite radio companies and cars to be declared void in case of a merger, arguing that together, they would allow monopolistic exclusion of HD radio from the market. The two satellite broadcasters have deals with every single major U.S. car manufacturer, effectively blanketing the market.

The two new radio technologies have been squaring off for several years. Beginning in the 1990s, satellite radio promised consumers a huge variety of radio programming, mostly commercial-free, with CD-quality sound. Not long after, HD iBiquity Digital Corporation began offering the same basic features with no subscription fees.

The penetration of both technologies remains relatively low--just a small percentage of radio listeners own either kind of set--but the companies feel there is potential for rapid growth.

Sirius and XM have aggressively partnered with automobile manufacturers to reach new consumers. The HD Radio Alliance, including most major terrestrial broadcasters, has organized campaigns worth hundreds of millions of dollars to raise awareness of HD.

Although Sirius CEO Mel Karmazin dismissed iBiquity's proposal, the idea could gain traction--especially as FCC Chairman Kevin Martin struggles to curry favor with Congress in an election year. Under fire from both parties for his handling of recent revisions to media ownership laws, Martin could play his popularity card--expanding consumer choice and control over media delivery. HD iBiquity's proposal could also provide both Martin and Congress with a way to present the satellite merger as benefiting the public.

Currently, Martin supports the "a la carte" subscription structure that Karmazin has promised to implement if the merger goes through. However, congressional critics, and the National Association of Broadcasters, a terrestrial radio lobbying group, say the a la carte plan delivers no real benefit to consumers.