Wednesday, February 28, 2007

Urge to Merge Part 6: Public Interest Benefit

XM and Sirius will have to prove that the public will benefit by this merger. This is the overriding concern of the FCC. The opponents to the merger will press their arguments as public interest concerns. In the end, the FCC did not find the EchoStar/DirecTv merger in the best interest of the public:

The Applicants have failed to meet their burden of proof to show that, on balance, the proposed merger is in the public interest. In this case, the record indicates that substantial potential public interest harms may result from the transaction, which in turn creates the need for Applicants to demonstrate that substantial and cognizable merger-specific public interest benefit will flow from the combination. The record before us irrefutably demonstrates that the proposed transaction would eliminate a current viable competitor from every market in the country, whether those markets are currently served by cable systems or are markets in which no cable systems exist, at best resulting in a merger to duopoly, and at worst a merger to monopoly. It would combine two DBS competitors who are currently fairly evenly balanced in terms of the assets necessary for effective competition in the MVPD market. Each has, over a number of years, at great expense, acquired the necessary spectrum licenses, developed and deployed the necessary equipment (satellites, earth stations, and consumer premises equipment), developed the necessary resources for marketing and consumer support, and acquired a substantial base of customers. Perhaps most significantly, each holds licenses for approximately half the total available orbital slots that allow broadcast to the entire continental United States - licenses they seek in this proceeding to transfer to a single new entity. Accordingly, the barrier to entry for any entity seeking to compete in the market for satellite provision of MVPD service would be enormous. Sufficient widespread entry into MVPD markets via terrestrial wireless and wireline platforms, at least within the next two years, is not substantially easier in [that?] respect.

It will be incumbent on XM and Sirius to explain the public benefit. The FCC evaluated the proposed EchoStar/DirecTv merger according to the following points:

1) Claimed benefits must be merger-specific; i.e., the claimed benefits must be likely to be accomplished as a result of the merger but unlikely to be realized by other means that entail fewer anticompetitive effects.

2) Claimed benefits must be verifiable.

3) Benefits are generally counted only to the extent that they can mitigate any anticompetitive effects of the merger.

4) The Commission applies a sliding scale approach to evaluating potential benefits, under which it will require applicants to demonstrate that claimed benefits are more likely and more substantial, the greater the likelihood and magnitude of potential harms.

The proposed benefits of the merger, taken from several documents, are:

a) Vigorous longterm competition in the audio entertainment market

b) More choice for the consumer - A la carte programming

c) Intentions to provide more commercial free music channels, sports, talk radio, etc., and the most advance traffic and weather available

d) The combined company will ultimately be able to eliminate duplicative programming and could use the extra bandwidth to offer enhanced public interest programming, particularly more diverse programming that targets under-served communities.

e) Satellite radio has enormous fixed costs, as demonstrated by the $6 billion in accumulated combined losses of the two companies. Improved efficiencies will allow the new company to reduce costs and deliver a better product to current and future satellite radio subscribers.

f) Strong platform for future innovation

Lets see how these stack up against how the FCC will likely evaluate them.

Claim a. Vigorous longterm competition in the audio entertainment market: Satellite already vigously competes in the audio entertainment market, regardless of the merger. The mere fact that terrestrial is now pushing HD radio is a result of competition from satellite radio. It is not
merger specific, so it fails point 1. They will have to show how the combined companies competes more vigorously in the audio entertainment market and how this is a public benefit. This is very tricky. The FCC found that if the EchoStar/DirecTv merger were more competitive with cable and simply meant that they were able to take customers away from cable, then it wasn't a public good. In other words, if they profited at the expense of cable, then it wasn't a public good. Likewise, if the combined company is able to steal listeners from terrestrial because they are better able to compete, it isn't a net gain for the public. It would also seem to fail point 4. If the market becomes more concentrated as a result of the merger, it is a hard argument to make that it offsets any anticompetitive effect. Consequently, it will be difficult to verify that
this will be true; therefore, it fails point 2.

Claim b. More choice for the consumer - A la carte programming: This could be a public good. If, for example, subscribers are able to receive MLB and the NFL, Stern and O&A, Martha and Oprah, all for the same price, then, yes, the public could benefit from this. We are extremely skeptical of a la carte programming. It means to us that they will extract more money out of subscribers. If it costs subscribers more without delivery more content than the combined services offer today, then it is not a public good. Logically, we should pay no more for the combined services. A subscription fee of $12.95 should cover the combined services. Any a la carte selection should be less expensive. If that is the case, then we might agree. We would love to be able to select only the music channels and pay less money. The big question is, how will they give the public more choices with the old receivers. We have a combined total of six receivers with one on a five year plan. It would seem to us that the vast majority of subscribers, in fact no currents subscribers- would benefit without paying out a lot more money. It only passes point 1 if they can get around the hardware limitation. It has the potential to be a public good. We need to hear more.

Claim c. Intentions to provide more commercial free music channels, sports, talk radio, etc., and the most advance traffic and weather available: The road to hell was paved with good intentions. Fails point 2. Would likely fail point 4.

Claim d. The combined company will ultimately be able to eliminate duplicative programming and could use the extra bandwidth to offer enhanced public interest programming, particularly more diverse programming that targets under-served communities: This was and is the great promise of satellite radio. Both services are bandwidth constrained. However, these benefits are in the future. The FCC will not consider it if it is more that 12 months off, if we are not mistaken. Although it is certainly true, it will likely fail point 2 and point 4 because it is so far off. The
bandwidth is also likely to be a problem with the FCC. As stated, both are bandwidth constrained. Both are developing hierarchical modulation (HM) techniques that will allow them to pack more in their allotted bandwidth. With the combination of bandwidth and the elimination of duplicative programming, they will have extra bandwidth for additional programming; however, they will be less likely to implement HM. They may decide that rather than going to the expense of implementing HM, they will just use the bandwidth that was freed up. EchoStar/DirecTv lost this argument. To not use the bandwidth as efficiently as possible is a public detriment. The FCC will count this against them if they are convinced that the combined companies are less likely to use their bandwidth less efficiently. One remedy would be to remove one of the licenses. It has the potential to be a public good, but it also has the potential to be a public harm. The following the text from the EchoStar/DirecTv merger proposal:

An additional problem with the Applicants' efficiency claims is that they ignore the
possibility that, because the merged entity will possess more spectrum, it will use it less efficiently than would EchoStar and DirecTV individually absent the merger. In particular. the merger may affect the incentive of the merged entity to adopt new, more productive technology, which in turn could affect how efficiently the spectrum will be used. The reason that the merged entity may be less willing to invest in productivity-enhancing technology is that the marginal value of a firm's spectrum will decline as the total amount of spectrum it controls increases. This suggests that, if as a result of the merger, New EchoStar doubles the amount of spectrum it controls, it will have a reduced incentive to invest in productivity enhancing technology. We note, in this regard, that the Applicants themselves have acknowledged the diminishing marginal value of the recovered spectrum. Thus, from a social welfare point of view, the merged entity may select a technology that is less efficient than it would select if each separate DBS competitor controlled less spectrum resulting in a public interest harm rather than a benefit.


XM and Sirius will have to address this issue. What seems like a public good can easily be turned into a public harm. They will also be asked to consider if the elimination of duplicative program could be done in other ways. The opponent of the merger brought up the following:

196. Opponents, while conceding that the merger could eliminate duplicative programming,
respond that consolidating channel delivery and eliminate duplicative programming could he achieved through less anticompetitive means. For example, some Opponents suggest that DirecTV and EchoStar could form a joint venture to share channel uplinks and downlinks and use compatible set-top boxes that could receive programming from either company's satellites and that the spectrum efficiencies are therefore not merger specific.


It could very well fail point 1. XM and Sirius could indeed form a joint venture and have interoperable radios. They should have had interoperable radios long ago. Look for their opponents to gig them on that. It will be one of many examples that will be given where their
opponents will say that they have flaunted their licenses.

Claim e. Satellite radio has enormous fixed costs, as demonstrated by the $6 billion in accumulated combined losses of the two companies. Improved efficiencies will allow the new company to reduce costs and deliver a better product to current and future satellite radio subscribers. It is perhaps worthwhile to cite the entire section of the FCC analysis on the Cost benefits. The FCC did not accept this argument by EchoStar/DirecTv:

2. Cost Savings

206. The Applicants claim that the merger will generate significant cost savings of
REDACTED per year or REDACTED. First, they assert that the merger will result in a reduction of REDACTED in subscriber acquisition costs (SAC). which represents a reduction in the cost of adding an additional customer of REDACTED. The Applicants break down the reduction in SAC into the following categories: reduced piracy costs of REDACTED (resulting from increased signal security made possible by the shift to a single DBS service platform), increased efficiency of installation for a savings of REDACTED, incremental volume discounts from hardware manufacturers and suppliers amounting to REDACTED, and savings in marketing. advertising and distribution of REDACTED.

Second, the Applicants also claim that the availability of local programming, plus other enhancements will reduce customer churn and save a total of REDACTED. Third, they claim that by merging, the parties will be able to realize a REDACTED reduction in programming costs which amount to a total savings of REDACTED. Fourth, the Applicants claim savings of REDACTED resulting from reductions in general and administrative expense. Finally. they assert that the merger will permit them to reduce capital expenditures by REDACTED. Opponents dispute these projected cost savings and the claim that they will be passed on to consumers. NAB suggests that the high post-merger concentration makes it unlikely that the merged entity will pass any cost savings on to consumers. NRTC and Pegasus further claim that the additional costs associated with the merger make it unlikely that the merged entity will pass along any cost savings to consumers. NRTC and Pegasus also argue that reduced customer churn should not be considered an efficiency, because it is the result of the elimination of competition. NAB claims that the Applicants failed to include any empirical data to support their claims and that the efficiency gains would be in fixed costs, which are less likely to off-set the competitive harms resulting from the merger. In response to the Applicants' July 5. 2OO2 Ex Parte presentation, NRTC questions the Applicants' claimed reduction in programming costs. NRTC claims this is not a true economic efficiency and even if realized might nor even represent volume discounting REDACTED.'"

207. Discussion: We find a number of issues and problems with the Applicants' efficiencies
showing. These issues and problems cause us to conclude that the Applicants have failed to adequately support their claims that the merger will result in significant cost savings. We discuss each of these issues in turn.

208. First, the Applicants have claimed several efficiencies that do not appear to be merger-specific and therefore are not cognizable. For example, the Applicants claim that the merged firm will require over 30 million new set-top boxes and that the cost per box will decline significantly REDACTED due to economies of scalc in production. They then claiim that the reductions in the costs of the set-top boxes represent an efficiency of the merger. To demonstrate that claimed volume-based cost savings are merger-specific, however, the Applicants must demonstrate that the cost savings result from the increased demand of the single merged entity. rather than from any increase in the entire industry demand. The Applicants have made no such demonstration. Moreover, they have not even alleged that
the cost savings could not result absent the merger because the components used by EchoStar and DirecTV individually are not sufficiently similar. Thus, for example, if set-top box manufactures would use the same computer chips and hard drives, regardless of whether the parties merged, then any volume-related cost savings resulting from the growth in total market demand would not be deemed merger specific. Similarly, the Applicants cite several factors for the reduced churn that contributes significantly to their total projected costs savings. It is not clear. however that one of the factors contributing to reduced chum - the adoption of "best practices at call center", service centers, and on installations - is merger specific. Likewise, the Applicants claim that churn will be reduced because the merged entity
will be able to offer a bundled MVPD broadband product. As dihcussed below, however, it is not clear that the ability to bundle broadband service with DBS service is merger-specific.

209. Second, many of their other claimed cost savings appear to be either speculative or
lacking in credibility. For example, according to the Applicants' own estimates, a significant percentage of the claimed cost savings will not accrue before 2006. As previously indicated, benefits that are projected to occur only in the relatively distant future are normally discounted because they are inherently less certain. This speculative nature of future benefits becomes particularly problematic if it is claimed, as Applicants do here, that certain benefits will continue into perpetuity. Specifically, the Applicants apply a terminal multiple of REDACTED, which 1s intended to measure the "going forward" value of cash flow for all benefits efficiencies that are present in year 2007. By applying this terminal multiple,
Applicants are basically claiming that the year 2007 efficiencies will continue forever. Claiming perpetual cost savings would always raise credibility issues, but those concerns are increased here, since some of the claimed cost savings appear to be of a limited duration. For example. the Applicants assumed that the merger would yield a reduction in piracy COst of REDACTED per gross add in the first year and REDACTED per gross add in each year thereafter, for a total savings of REDACTED in piracy costs. The projected reduction in piracy costs, however, is premised on changes in the conditional access software that will be implemented with the box swap. While this change in conditional access may initially reduce piracy, it is not at a ll clear that the incidence of piracy will not begin to rebound.

210. In other cases, the Applicants either have clearly exaggerated the likely cost savings or
have simply failed to provide adequate justification for their efficiency estimates. For example, the Applicants have not adequately substantiated their claimed savings in programming costs. In particular, they have not demonstrated that programming costs will necessarily fall to the extent they predict based on the merged entity’s larger subscriber base. We note in this regard that the record indicates that REDACTED. Similarly, they have not provided sufficient evidence to support their claimed installation efficiencies and distribution efficiencies or the cost reductions associated with reduced churn. In addition, the Applicants frequently fail to distinguish claimed cost savings that would result in a reduction in marginal cost from cost savings that would result in a reduction in fined cost. For example, it is not clear whether the Applicants’ projected savings in advertising, marketing, and distribution, which it claims will contribute to a significant reduction in SAC represents savings in marginal cost or fixed cost.

211. In addition, the Applicants’ analysts of cost savings takes the form of a business case
analysis, rather than a welfare analysis that speciLcdly considers whether claimed cost reductions result in net increases in social surplus, which can be balanced against any anticompetitive effects of the merger. Certain of the Applicants’ claimed efficiencies appear to represent no true cost savings, but rather only a transfer of surplus. For example, it appears that a portion of the claimed reduction in SAC costs actually relate to a reduction in the subsidy DirecTV and EchoSrar currently provide to retailers and new subscribers to cover part of the cost of equipment and installation. Since a reduction in the subsidy simply means that the retailer or customer will pay more, there is no cognizable efficiency gain from this
portion of SAC. Reductions in these “expenses,” rather. may he indicative of the elimination of competition and the resulting consumer harms. Similarly. we agree with NRTC and Pegasus that reductions in churn may more accurately be considered indicative of the reduction in consumer choice and so cannot be counted as a public benefit. Finally. any savings in programming costs that result from a change in bargaining power represent a
shift in surplus between programming providers and DBS operators, but not necessarily an increase in total surplus.

212. To summarize, as described above, the Applicants have failed to demonstrate that certain of the claimed efficiencies are merger-specific. Other claimed cost savings appear too speculative, while others simply are not credible. Finally, other alleged cost savings do not appear to be true efficiencies but rather represent a shift in surplus between parties without any necessary increase in social welfare. Again, as discussed above, what is important is the extent to which these lower costs lead to lower prices and can offset the reduction in competition, rather than whether the merged entity will achieve a lower cost structure as a per se matter.


This will be a difficult argument for XM and Sirius to make as well that this is a public benefit. Public welfare arguments are tricky, tricky, tricky.

Claim f. Strong platform for future innovation: This will fail point 2. There is no reason to believe that the combined companies will strive harder to make more innovative products as a result of the merger. The healthy competition between the two has given us the wonderful products that we enjoy today. This simply is not credible.

One could make a few substitutions here and have to the citation that began this post and make the FCC case against the satellite radio merger:

The Applicants have failed to meet their burden of proof to show that, on balance, the
proposed merger is in the public interest. In this case, the record indicates that substantial potential public interest harms may result from the transaction, which in turn creates the need for Applicants to demonstrate that substantial and cognizable merger-specific public interest benefit will flow from the combination. The record before us irrefutably demonstrates that the proposed transaction would eliminate a current viable competitor from every market in the country, whether those markets are currently served by internet radio, cell phone providers, terrestrial radio or are markets in which no service exist, at best resulting in a merger to duopoly, and at worst a merger to monopoly. It would combine two satellite radio competitors who are currently fairly evenly balanced in terms of the assets necessary for effective competition in the SDARS market. Each has, over a number of years, at great expense, acquired the necessary spectrum licenses, developed and deployed the necessary equipment (satellites, earth stations, and consumer premises equipment), developed the necessary resources for marketing and consumer support, and acquired a substantial base of customers. Perhaps most significantly, each holds licenses for half the total available bandwidth that allow broadcast to the entire continental United States - licenses they seek in this proceeding to transfer to a single new entity. Accordingly, the barrier to entry for any entity seeking to compete in the market for satellite provision of SDARS service would be enormous. Sufficient widespread entry into MVPD markets via terrestrial wireless and wireline platforms, at least within the next two years, is not substantially easier in that respect.

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Tuesday, February 27, 2007

Urge to Merge Part 5: Market Concentration/Barrier to Entry

Once the FCC established the relevant markets and the market participants in the EchoStar/DirecTv merger proposal, it considered the "anticompetitive effects, such as higher prices, lower quality, or reduced incentives for innovation." Following the DOJ/FTC Guidelines, as well as antitrust and Commission precedent, the FCC first examined "the post-merger market concentration and the change in market concentration that is likely to result from the merger." To evaluate the merger, the FCC the used the Herfindahl Hirschman Index (HHI). It is a very simple calculation, being the sum of the squares of the market percentages of all the market participants. For example, if Company A has 10%; Company B, 20%; Company C, 30%; and Company D, 40%, the HHI calculation would yield 10**2 + 20**2 + 30**2 + 40**2 = 3,000. This would be considered to be a highly concentrated market. The increase in the index as a result of a merger would be 2*Company X * Company Y. If Company B and C were to merge, the increase in the index would be 2*20*30 = 1,200, which would set off the alarm bells to the DOJ/FTC/FCC. Under DOJ/FTC Guidelines, any index that exceeds 1,800 is considered highly concentrated (few if any competitors). In the post merger scenario, if the increase in the index exceeds 50, it is presumed that there are likely anti-competitive effects as a result of the merger. Under the EchoStar/DirecTv model, the index was calculated to be below 1,000. The FCC called the calculation "fatally flawed".

Essentially, what they tried to do was to call themselves a national provider and compared themselves to local cable providers attributing a separate national market to each cable provider. It made is appear that there was thousands of competitors. The net effect was, according to the FCC example, equivalent of saying that a Charter customer in Pasandena, California could switch service to Cablevision in New York without moving his household--silly, of course.

As stated in the Relevant Market post, the FCC rejected the idea that EchoStar and DirecTv competed on a national basis with the other market participants. The FCC ruled that they competed locally with the local cable franchises and subsequently divided the relevant geographic market into 3 segments, those with no cable service, those with low capacity cable service, and those with high capacity cable service. It was a total of 4,984 geographic markets. After recalucating the index, the FCC arrive at a mean HHI of 6,043 and a mean post merger increase of a whopping 1,163. This is the reason why the satellite radio providers don't want to go there by establishing terrestrial radio as part of the relevant product market. Once they do this, the geographic market will be ruled local by the FCC. It would be great if the FCC considered terrestrial as a whole. If we assume XM and Sirius have say 5% of the market or listeners (and neglecting the rest), the HHI would be 5**2 + 5**2 + 90**2 = 8,150. This would indicate a highly concentrated market, perhaps super concentrated. The increase to the index due to the merger is 2*5*5= 50, right on the borderline (however, the assumptions might be too high). However, considering that the market is already super concentrate, it is doubtful that the FCC would do anything to increase the concentration.

But this is not what happened in the EchoStar/DirecTv merger proposal. As previously stated, they divided the market into 3 geographic regions. This is precisely what will happen if terrestrial radio is included as part of the relevant market. It is a trap into which they must not fall. Once they start comparing individual markets, those with no terrestrial stations will have a post merger index of 10,000, the theoretical maximum. Those markets underserved by terrestrial radio with have a similar post merger index. In both of these case, the post merger increase would be high. Only in the major markets could there be a low index. Los Angeles, for example, might have a large variety of stations capable of competing with satellite radio (We hear that Country is even coming back on an HD channel). In this case, the index could be low.

If they keep the relevant product market and market participants on a national basis, it has a chance of remaining national. For example, let's say that the market participants and product market is internet (or broadband of some sort) and cell phone providers. In this case, the person in California would have several choices of providers, both broadband and cell phone provided content. It's true that these options would still exist with terrestrial included, but if terrestrial is included, it would be considered the primary competition and this will be the primary comparison. All others will show insignificant market concentration in comparison.

The FCC next considered the "barriers to entry".

If entry is sufficiently easy, new entrants will likely render unprofitable any attempted post-merger price increase. The Guidelines explain thatentry is sufficiently easy to deter post-merger price increases "if entry would be timely, likely, and sufficient in magnitude, character, and scope to deter or counteract the competitive effects of concern." The Guidelines explain that entry will be considered "timely" only if it "can be achieved within
two years from initial planning to significant market impact."


If terrestrial is included, then the barrier is high for a local station to enter the market compared to any return than might be gain relative to a price increase by the satellite radio provider. Satellite radio is next to irrelevant to terrestrial. In reality, terrestrial radio would not react to a price increase by satellite radio. On the other hand, if it is excluded, then the comparison might be to internet (broadband) and the cell phone providers. Here the barrier to entry is low, especially for internet providers. Although a cell phone network is expensive to build out, adding audio services by a third party is not. There are a number of options to cell phone providers. If iPods, MP3 players, and CD players are included in the relevant market, it could act as a price control on satellite radio, but since most consumers find it undesireable to program their on content, it is not a true option. It would be prohibitively expensive for another satellite radio provider to enter the market, even it spectrum were available.

[soapbox]Quite honestly, we have a problem using a broad definition of relevant product market. Internet radio is no substitute for satellite radio. Satellite radio is primarily a mobile service. The internet just can't compete there. It is not ubiquitous. Perhaps it solves the home and office concerns, but it does not address the primary function of satellite radio as a mobile service. Likewise, MP3 players, iPods, and CD are not suitable substitutes. They lack the spontaneity of satellite radio. Cost is a barrier of entry for all of these, plus the cost of the media to provide a similar diversity. In addition, they can't provide weather and traffic, sports, or news programming, at least not without a lot of work by the consumer. All these things we had available as choices, yet we chose satellite radio. There is something about knowing what is coming up next that goes against the gain. The only true substitute for satellite radio is another satellite radio provider--and a merger of the only two providers makes a monopoly.[/soapbox]

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Sunday, February 25, 2007

Urge to Merge Part 4: Market Participants

Here we will consider the market participants as the FCC considered in the EchoStar/DirecTV merger proposal. The FCC included the present entities that competed in relevant market as well as the future or uncommitted entrants likely to enter the relevant market "within one year and without expending significant sunk costs of entry and exit in response to a small but significant and non-transitory increase in price."

If the FCC were to take the broadest view of the relevant market, including terrestrial radio, the market participants would be huge, including every local market. In the narrowest of views, it would only be satellite radio. We expect the FCC to exclude terrestrial radio for the reasons given in a previous post. In the narrowest of views, the merger is DOA and no further consideration is needed. However, we would expect, based on the EchoStar/DirecTv merger proposal, that the FCC would take a broader definition to include internet radio and content delivered by cell phone as part of the relevant product market. The FCC might also include WiMax and WiFi. WiFi and in particular WiMax is a growing threat to satellite radio, although neither will offer nationwide service anytime soon. It is debatable whether these could really compete with satellite radio within 12 months of merger, so we will exclude them here. Then there is Qualcomm's MediaFlo and Crown Castle's Modeo. Both of these services compete more with satellite TV than satellite radio and they are both wholesalers, as we understand it, so we think they would likely be excluded as a market participant. The iPods and MP3 players as well as CD players are possibilities, but being a means to content and not a paid services, we expect these to be excluded. We tend to dump HD radio along with terrestrial radio. This could prove to be erroneous. HD radio could offer similar features as satellite radio such as program associated data and telematics. Although the service is free, there is a barrier to entry, the cost of the receivers. One could argue that the development of HD radio was accelerated due to the introduction of satellite radio. It was terrestrial radio's response to satellite radio. However, we think that the FCC will say that it is an extension of terrestrial radio and therefore excluded. As far as another satellite radio goes, there are two more entities that are permitted to hold a satellite radio license. There is no way that either of these could provide a competitive service within 12 months nor is there any indication that they would be willing to spend the required capital to compete with other providers based a small price increase.

In summary, the market participants would appear to be internet radio and cell phone delivered content, more or less the same as the anticipated relevant product market.

In the EchoStar/DirecTv merger proposal, the FCC almost seemed to second guess itself on the relevant product market. In the applicant's market participant analysis, they only considered DBS providers and cable providers and not the entire MVPD market that the FCC accepted as the relevant product market. The satellite radio providers have to be careful here, else they could have their relevant product market defined as only satellite radio. A merger of the only two providers in a relevant product market creates a monopoly. A monopoly will not be approved.

Bear with us. These posts relate to what satellite radio has in order to get the merger approved. Ultimately, it comes down to the public welfare. Somehow, the public has to benefit from the merger.

Stay tuned for Urge to Merge Part 5: Market Concentration/Barrier to Entry

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Saturday, February 24, 2007

Urge to Merge Part 3: Relevant Market

In the analysis of the relevant market for the EchoStar/DirecTv merger proposal, the FCC examined the product and geographic relevant markets.

The FCC used the Department of Justice (DOJ)/Federal Trade Commission (FTC) guidelines. The product market definition was cited as follows:

The Guidelines define the relevant product market as the smallest group of competing products for which a hypothetical monopoly provider of the products would profitably impose at least a “small but significant and non-transitory price increase,” presuming no change in the terms of sale of other products. In other words, when one product is a reasonable substitute for the other in the eyes of consumers, it is to be included in the relevant product market even though the products themselves are not identical. Thus, the relevant product market includes “all products ‘reasonably interchangeable by consumers for the same purposes.'"

In a similar test, the FCC asks the following:

In particular, in defining the relevant product market for merger analysis, one starts with the products supplied by the merging firms and ask whether a monopolist, supplying those products, would profitably impose "a small but significant and non-transitory price increase.” If the monopolist would not be able to impose such a price increase, then one adds in the next closest substitute to the products of the merging firms and repeats the experiment. The relevant product that results from this procedure depends significantly on the products with which one started.

From reading the above, one might quickly conclude that the relevant product market is satellite radio and only satellite radio. Certainly, if there was only one satellite radio provider, a significant price increase could be passed along to its customers. Sirius has already entertained the idea. XM has said that as time passes, the idea of a price increase becomes more valid. Without restrictions, one might conclude that a price increase is likely. In a previous post, we mentioned that price controls were a way in which the FCC might act to protect the consumer. This idea also surfaced in the EchoStar/DirecTv merger proposal. The preferred method by the FCC is not to use price controls but rather to use competitive forces. So, perhaps we erred in saying that price controls could be one of the prices that the providers would pay to make the merger happen.

The same case could have been made for satellite TV. How did the FCC rule? They accepted the applicant's definition of the product market, taking the broadest definition possible. They accepted that the product market was all Multichannel Video Programming Distribution (MVPD) services. That might bode well for satellite radio's case. However, there is a difference. All of the MVPD services are paid services. Terrestrial, over the air broadcast TV was not included in the relevant product market. Therefore, we don't think the FCC would consider terrestrial radio as part of the relevant product market. It's like bottled water versus tap water. Although tap water is a substitute for bottled water, tap water is always a choice that the consumer has. In other words, the consumer can choose to pay for bottled water and have tap water available essentially for free at the same time. A consumer might have satellite radio but still listen to terrestrial radio. It is not one or the other. The consumer does not have to choose tap water; it is readily available. For this reason, the FCC would not likely consider terrestrial radio in the relevant market. On the other hand, if they took a broad definition, they might consider iPods, MP3 players, content delivered by cell phone, and internet radio as part of the product market. It is like considering soft drinks, sports drinks, energy drinks, beer, and wine as part of the relevant market for bottled water. Perhaps this is a stretch, but this is essentially what the FCC did for the EchoStar/DirecTv proposed merger. It is our guess that iPods and MP3 players would be excluded in any case because they are not services and are only a means to content. The Apple service, iTunes, might well be included as an internet service.

In summary, there is precedence for the FCC accepting a broad definition for the product market, but it is unlikely to extend to cost-free services, such as terrestrial radio. If the FCC takes a narrow approach, the merger will be DOA.

DOJ identifies a relevant geographic market as the region where a hypothetical monopolist that is the only producer of the relevant product in the region would profitably impose at least a “small but significant and nontransitory” increase in the price of the relevant product, assuming that the prices of all products provided elsewhere do not change." This approach is consistent with the Supreme Court’s definition of the relevant geographic market as the region “in which the seller operates, and to which the purchaser can practicably turn for supplies.”

In the case of the EchoStar/DirecTv, the applicants argued that they were national in scope. It was argued by the opponents of the merger that the alternatives were all local. Although the FCC agreed that the applicants offered nationwide service, they ruled that the geographic market was local saying that "...consumers make decisions based on the MVPD choices available to them at their residences. Technically, the relevant geographic market, therefore, is the residence of each customer, since it would be prohibitively expensive for a customer to change his residence to avoid a 'small but significant and nontransirory' increase in the price of MVPD service." The geographic product area was defined for the purposes of the merger proposal as "franchise area of a local cable operator, since customers within the franchise areas have the choice between the incumbent franchised cable company and the two DBS providers."

The geographic market was important because the FCC divided it into 3 categories: "(1) markets not served by any cable system; (2) markets served by a low-capacity cable system; and (3) markets served by high-capacity cable systems."

As long as the FCC excludes terrestrial radio from the relevant product market, the FCC would conclude that the relevant geographic market is national in scope, since all the other alternatives are also national in scope and their are no local franchise area. However, if the FCC were to rule that terrestrial radio was included in the product market, the FCC might rule that the geographic market was local and would divide the market into similar categories as the FCC did the EchoStar/DirecTv merger proposal becasue they would be competing with the local radio stations. This would be bad news in our opinion. There is no doubt that terrestrial radio is the main competition for satellite radio, and, if included, would define the relevant geographic market. The converse is not true, however. Satellite radio barely shows up on the radar
as competition to terrestrial radio.

In the above case, what would the categories be if terrestrial radio were included? Satellite Radio TechWorld suggest that the categories could be divided into (1) markets not served by terrestrial radio; (2) markets served by at least one but less than two terrestrial stations; and (3) markets serves by more than two terrestrial stations. For those in the first category, they would have no comparable substitutes; therefore, the FCC would consider in anti-consumer and anti-competitive. We would like to reiterate that this is only if terrestrial radio were to be included in the relevant product market. We do not believe this will be the case.

After reflecting on how the FCC might define the geographic markets if terrestrial radio were included, we suggest that it might be (1) Markets not served by terrestrial radio; (2) markets underserved by terrestrial radio; and markets well served by terrestrial. In order for a terrestrial market to be considered well served, there would have to be several genres offered. At a minimum, there would have to be terrestrial stations that offer rock, country, news, sports, talk radio, religious programming, jazz, blues, urban, dance, French culture (?), classical, kids programming, comedy, and latin music in the geographic area. A geographic area would have to offer most if not all of these to be a substitute for satellite radio. Any area not offering a full complement might be considered underserved. We feel this definition might be more in line with how the geographic market was divided for the DBS providers. For instance, a low capacity cable channel really did not compete with satellite TV. Those areas where terrestrial radio does not offer a full complement of programming would be equivalent to a low capacity cable provider.

We feel that it would be a mistake for the satellite radio providers to push to have terrestrial radio as part of the relevant market. It isn't likely, in our opinion, that the FCC will accept terrestrial radio as part of the product market for satellite radio. In 2003, the FCC ruled that satellite radio was "not yet" a substitute for terrestrial radio. Their reasoning was that satellite radio was only a substitution for terrestrial radio for those that had it and there were too few subscribers presently. Today with 5% or so of the market (maybe 10% of the listeners?), satellite would likely still be considered too small as compared to terrestrial radio. For that matter, they also excluded internet radio, saying that terrestrial radio was a mobile service, while internet was tied to a PC and was therefore not mobile. The same is more or less true today. The same reasoning should apply to satellite radio and, therefore, internet radio would logically be excluded.

Stay tuned for Part 4 Market Participants.

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Urge to Merge Part 2

The merger of XM and Sirius has been compared to the attempted merger of EchoStar and DirecTv. Former FCC chairman, Powell, thinks that a merger is possible, but it will be incumbent upon XM and Sirius to explain why it is different from the EchoStar and DirecTV merger proposal. They have their work cut out for them.

Indeed, satellite radio was cited in the EchoStar/DirecTV merger as a means employed by the FCC to ensure competition. This could be the smoking gun that shoots down the merger:

This Commission has a long-standing policy of promoting competition in the delivery ofspectrum-based communications services and has implemented numerous measures to foster entry and ensure the availability of competitive choices in the provisioning of such services. For instance,in theDARS proceeding, the Commission established a licensing approach that provided for two DARS licensees because it determined that more than one DARS licensee was necessary “to ensure competitive rates, diversity of programming voices, and other benefits of a competitive DARS environment.”

We have started an initial look at the EchoStar and DirecTV attempted merger. There were 15,262 public comments filed over this. Let us repeat, 15,262 public comments. Expect the XM and Sirius merger to be no less controversial. The application alone was 1,132 pages. We haven't begun to look at it. The final order was 128 pages. The vote was 4-0 against it.

Chairman Powell said at the time, "The commission cannot confirm that this merger is in the public interest." He also called the cost to consumers "staggering."

The process took 13 months, before it was offically dead. GM and EchoStar filed their applications on December 03, 2001. By October 09, 2002, the FCC had established that the parties had not met the burden of proof that it served the public interest. At that time, the FCC gave the two parties 30 to ameliorate the competive concerns of the transfer. The price was too high. On December 10, 2002, the parties withdrew their applications. On January 10, 2003, it was officially dead. The FCC never denied the merger, but it was effectively killed with its ruling on October 09, 2002. On a positive note, Martin dissented in part to the original decision.

We believe the application can be approved. The question is, "At what cost?" XM and Sirius will have to address the anti-competive and anti-consumer concerns. In addition, they will have to appeased NAB and the WCS Coalition and the myrid of other groups that will come out of the woodwork. Expect price controls, niche programming commitments, the disappearance of the local traffic and weather channels, the lost of bandwidth, concessions on the repeater networks, and more lenient terms for the WCS band transmissions (which could reduce the quality of reception by satellite radio receivers). When it came down to it, the FCC did not reject the EchoStar/DirecTv merger; the bar was just raised too high.

Other fun facts: At the time, it was an $18.5 Million merger. Combined, the EchoStar and DirecTv had 18 million subscribers. It costs EchoStar $600 million for the break up fee and another $100 million in merger related expenses.

We are about half way through the 128 page Order rendered by the FCC. There is some really good stuff in there on the Relevant Market. Stay tuned for Part 3.

Additional comments:

We stated that satellite radio might be forced expand the niche programming and that they might be forced to give up one fo the satellite radio licenses in order for the merger to get approved. As it stands, they can't pack two pounds of content in a one pound bag without altering the quality of the service, much less expand the content offerings. Expanding the niche programming content is an angle that satellite radio should exploit. If they can win that argument, then giving up half the bandwidth should be out of the question. Hopefully, once content is consolidated, they will be able free up bandwidth. Let's hope they don't use the freed up bandwidth for video. We would prefer them to use it to improve the sound quality to near CD quality.

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Friday, February 23, 2007

Satellite Drift Eclipsed

XM filed for a 90 day renewal of its application to operate XM-1 at the 115.1 WL before drifting it to its permanent location at 85.2 WL. XM-1 and XM-2 were colocated at the 115.1 WL location, where they operated as one satellite prior to the launch of XM-4. Now that XM-4 is in operation, XM-1 has ceased transmissions. The plan was to drift it to the 85.2 WL location to be near XM-3. XM had 180 days to complete the operation. However, XM encountered a minor complication.

XM-1 has already experienced degradation of its solar array concentrators. It is feared that further damaged could result due to the upcoming eclipse season (February 26 to April 13). Concentrator failures could lead to imbalances in the solar torque applied to the satellite, which could lead to instability, making the mission risky. XM requests the FCC to allow it to wait until after the eclipse season to make the final maneuver. The extension is in case of any unexpected delays.


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XM's Notice of Inquiry for Its Repeaters

Most of you by now have heard about XM's disclosure that it received a notice of inquiry (NOI) from the FCC. It should not be a surprise to our readers here. Ultimately it could result into a notice of apparent liability (NAL), which will result in a "forfeiture" of some magnitude.

The FCC has been handing out NAL's right and left the last few weeks. They have handed out NAL's every day this month, except one. A quick count shows 156 NAL's or other forfeitures this month alone, resulting in a weighted average of $4,700 for each incident. Most of these were for failure to file for renewal in a timely matter. The vast majority of the forfeitures were for $1,500 (73). The next most popular forfeiture was for $7,000 (47). Forfeitures were for as much as $25,000 (1) for the month. There were only 17 forfeitures above $7,000.

Since both XM and Sirius volunteered the information, one would expect the forfeitures to be minimum. We would guess a worse case of $1,500 per incident. The total amount would depend on whether the FCC considers the network of repeaters as a whole or individually. And then there are the 4 repeaters that XM continued to operate with authority. Quite possibly, the FCC could look unfavorably on this and hit them with the maximum penalties.

If satellite radio can get this out of the way without curtailing the repeater network, it would be well worth a million dollars to get it out of the way. We expect it to be much less than that.

As a further note, in a December 2006 filing regarding its repeaters in response to a WCS Coalition filing, XM establishes that the precedent of the FCC treating unauthorized conduct separately from an STA request. Providing that the FCC does in fact accept this notion, then the NOI should have no impact on whether the repeaters are ultimately shut down or the power reduced. There should only be concern over how much they might be fined. If you have not read the above referenced filing, it is worthwhile to do so. It is one of XM's better responses. We learned a few things.

As XM stated, they have filed for special temporary authority (STA) to operate its modified repeater network. This filing should be considered independently of any forfeitures that might be imposed. It is the STA that will determine if any repeaters are shut down or it the power is reduced. The WCS Coalition has already lost the battle (short term) over whether the power is determined by average or peak. If the December filing, XM makes it clear that power has always been determined by the average. For the WCS license holders, it is peak power. That is a mistake that we made ourselves in differentiating between the two services.

If you would like to learn more about this process, please follow this link.


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XM Files for Authority to Operate Very Low Powered Repeaters and Signal Boosters.

Yesterday, XM filed applications for a 30 day and 180 day special temporary authority to operate very low powered repeaters and signal boosters at indefinite locations. These devices will be used at "automobile dealer promotional events, press events, and trade shows". Each event will be for a week or less. XM expects to operate at no more than 3 events per month, using no more than 8 repeaters and 6 signal boosters total at any given time.

This authority is very similar to one recently granted that allows XM to operate very low powered repeaters and signal boosters at trade shows.

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Wednesday, February 21, 2007

XM Receives Trademark for Home Plate

Yesterday, Home Plate became an officially registered trademark of XM Satellite Radio. XM filed for the trademark on January 18, 2005.
Mark Image
Word Mark HOME PLATE
Goods and Services IC 041. US 100 101 107. G & S: Entertainment services, namely an audio channel of sports programming delivered via satellite and via Internet. FIRST USE: 20050215. FIRST USE IN COMMERCE: 20050215
Standard Characters Claimed
Mark Drawing Code (4) STANDARD CHARACTER MARK
Design Search Code
Serial Number 78548931
Filing Date January 18, 2005
Current Filing Basis 1A
Original Filing Basis 1B
Published for Opposition October 11, 2005
Registration Number 3211850
Registration Date February 20, 2007
Owner (REGISTRANT) XM Satellite Radio Inc. CORPORATION DELAWARE 1500 Eckington Place, N.E. Washington D.C. 20002
Attorney of Record Patrick J. Jennings
Type of Mark SERVICE MARK
Register PRINCIPAL
Live/Dead Indicator LIVE


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Tuesday, February 20, 2007

XM has Patent Application Published to Convert Signals

On February 15, 2007, XM had a patent application published for converting a broadcast signal of one type (including ancillary data) into a broadcast signal of a second type. It appears to be an XM to Sirius converter, or visa versa. If so, it could solve some the OEM issues with the merger.

This application appears at the European Patent Office. It is strange how it appears on several accounts. First, there is only the abstract information. The application itself is not there. We haven't yet been able to locate a US equivalent. We recognize none of the inventors. None of the inventors show up on any US applications. Buchheim shows up on one patent for a portable digital audio player, but nothing related to satellite radio. The abstract is pretty much self-explanatory, so here it is:

BROADCAST SIGNAL INTERFACE DEVICE AND METHOD THEREOF

Publication number:WO2007019432
Publication date:2007-02-15
Inventor:BUCHHEIM JAMES (US); HENNIG ARNE (US); KRCMARIK DONALD (US); TRICARICO JAMES ROCCO II (US)
Applicant:XM SATELLITE RADIO INC (US)
Classification:
- international:H04J1/05; H04J1/00;
- European:
Application number:WO2006US30701 20060807
Priority number(s):US20050705497P 20050805

Abstract of WO2007019432
Provided are a broadcast signal interface unit and method for converting program content and ancillary data of a first broadcast type into a broadcast channel of a second broadcast signal type. The broadcast channel of the second broadcast signal type is provided to one or more broadcast receivers of the second broadcast signal type in order to reproduce the program content and the ancillary data. The broadcast signal converter includes a converter for generating the broadcast channel of the second broadcast signal type. The generated broadcast channel of the second broadcast signal type comprises the program content and ancillary data.

Edit February 22, 2007

Our first thought was that it had to be a conversion from one satellite radio signal to another. Upon reflection, it could be for any type of digital radio. For instance, it could be for HD Radio or digital FM or whatever one would like to call it. Not long ago, XM had a patent application published for digital remodulation. This appears to be for converting an XM signal to digital FM. The description is similar, but the inventors are altogether different. Here is the abstract on that one:


United States Patent Application 20060126716
Kind Code A1
Williams; Wendi ; et al. June 15, 2006

Digital remodulation

Abstract

A method (30) of digital remodulation of a received or source signal using a digital audio radio (116) having a first digital radio frequency path (119 to 116) or using a first digital radio frequency comprises the steps of re-encoding (38) the received signal to provide a re-encoded digital signal, reformatting (40) the re-encoded digital signal into a new digital format signal, and digitally modulating (42) a radio frequency carrier with the new digital format signal. The method further comprises the step of selectively switching (42) a radio frequency path of the digital audio radio from the first digital radio frequency path to a second radio frequency path (114 to 116) or from the first digital radio frequency to a second digital radio frequency having the radio frequency carrier with the new digital format signal.


Inventors: Williams; Wendi; (Lake Worth, FL) ; Marko; Paul; (Pembroke Pines, FL) ; Wadin; Craig; (Sunrise, FL)
Correspondence Name and Address:
    AKERMAN SENTERFITT
P.O. BOX 3188
WEST PALM BEACH
FL
33402-3188
US
Assignee Name and Adress: XM Satellite Radio, Inc.
Washington
DC

Serial No.: 012579
Series Code: 11
Filed: December 15, 2004

U.S. Current Class: 375/240; 375/242
U.S. Class at Publication: 375/240; 375/242
Intern'l Class: H04B 1/66 20060101 H04B001/66; H04B 14/04 20060101 H04B014/04

Edit: February 23, 2007

More details have been made available for this patent application. It now appears that it is not a satellite radio to satellite radio conversion. It is a satellite radio to FM-RDS conversion.

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XM Receives Patent for Using Stored Content At Receivers to Improve Efficiency of Broadcast System Bandwidth Use

Today, February 20, 2007, XM received a patent for using stored content to improve bandwidth efficiency.

It's a relatively short and simple patent. Music, advertisements, news programs, etc. are stored locally on a receiver. At some point, control codes are sent to the receiver to play back the locally stored content in the alloted time slot. It is more efficient, for example, to store a popular song and play it back on command than to re-broadcast it each time.


United States Patent 7,180,917
Marko , et al. February 20, 2007

Method and apparatus for employing stored content at receivers to improve efficiency of broadcast system bandwidth use

Abstract

The invention relates generally to a receiver unit in a digital broadcast system for receiving a broadcast signal comprising content segments and control data, and generating an output signal using the content segments and previously stored content segments. The previously stored content segments are retrieved from a local memory device using the control data and inserted among the received content segments.


Inventors: Marko; Paul D. (Pembroke Pines, FL), Wadin; Craig P. (Sunrise, FL)
Assignee: XM Satellite Radio Inc. (Washington, DC)
Appl. No.: 09/695,226
Filed: October 25, 2000

Current U.S. Class: 370/535 ; 370/319; 725/89
Current International Class: H04J 3/04 (20060101)
Field of Search: 370/315,316,326,390,432,535,537 725/38,39,40,42,44,46,47,48,49,50,87,88,89



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Monday, February 19, 2007

NAB Opposes Merger

To no surprise, the NAB came out against the merger (takeover) today saying:

"In coming weeks, policymakers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming. We’re hopeful that this anti-consumer proposal will be rejected."

The NAB was not very complimentary about satellite radio further stating:

"When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems. Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bail-out to avoid competing in the marketplace."

Looking for a battle royal in the ensuing months from NAB and the WCS Coalition. There will be concessions.



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Thursday, February 15, 2007

Repeaters in Alaska and Hawaii

Tomorrow, the FCC will designate Sirius' application for repeaters in Alaska and Hawaii as "permit-but-disclose". Basically, the FCC will solicit comment on the application. The NAB wins another one. This is a typical delay tactic. It will be a while before one sees repeaters in Alaska or Hawaii, if ever. This application has been out there since November 07, 2006.

Also tomorrow, the FCC will put Sirius' application to add 15 low powered repeaters on public notice. This application has been in limbo since December 07 (there will be an error in the notice). At least now it will get some attention.

Sirius' second 30 day application filed December 08 to replace its repeater previously located at the StarDust Hotel is still in limbo. The FCC expeditiously granted the first 30 day application. After complaints by the WCS Coalition, the FCC has been sitting on the second application. The Coalition continues to have influence on the FCC.

Edit February 16, 2007
It has been widely reported that Sirius was granted authority to put repeaters in Alaska and Hawaii. The FCC notice today was mis-interpreted by these sources. The application unequivocally has NOT been granted. The application is now is a comment period where the interested parties can present the merits of the application to the FCC. Authority will NOT be granted anytime soon. Careful reading of the notice clearly indicates that the application was NOT granted today. This was taken from the notice today:

SAT-STA-20061107-00131 E

Special Temporary Authority

Date Filed: 11/07/2006 20:09:02:56600

Sirius Satellite Radio Inc.

On November 7, 2006, Sirius Satellite Radio Inc. ("Sirius") filed a request for special temporary authority (STA) to operate four satellite digital audio radio service (SDARS) terrestrial repeaters in Alaska and in Hawaii with power levels below 2000 watts. The repeaters would operate at the locations, and with the technical characteristics, set forth in Sirius' application. Sirius states that grant of its STA request is necessary to allow it to provide high quality commercial SDARS programming in Alaska and Hawaii. Sirius also states that the terrestrial repeaters will be used to overcome the effects of satellite signal blockage and multipath interference. This application has been designated "permit-but-disclose" for the purposes of the Commission's rules governing ex parte communications. See Policy Branch Information: Actions Taken, Report SAT-00409, DA 06-2575 (released December 22, 2006).


This is similar to the public notice issued on December 22, 2006.

Ex Parte Presentation

Any communication addressing the merits or outcome of a particular proceeding made to decision-making personnel (or in some proceedings, from the decision-making personnel), which, (1) if written, is not served on the parties to the proceeding, or (2) if oral, is made without opportunity for the parties to the proceeding to be present.

Permit-but-disclose

Rules requiring that summaries of such (ex parte) presentations be placed in the record. In other words, the parties are allowed to present their case to FCC without the other parties present, but they must file a summary of the presentation to the public record for all to see.

For more information, see the FCC fact sheet on Ex Parte rules.

Edit February 17, 2007
In case there are still doubters, the status below was taken directly from the FCC International Bureau website. Notice the status date and the Grant Date. Click to enlarge.
























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Tuesday, February 13, 2007

Sirius Meets with FCC on the 11 Repeaters That were Shut Down

Sirius had several meetings with the FCC on February 06, 2007, to urge the FCC to rule on its application to re-instate the 11 repeaters that it voluntarily shut down last year. These repeaters were operating outside of their established operating parameters.

Sirius also encouraged the FCC to conclude the rulemaking on satellite radio repeaters to remove the uncertainty that the satellite radio providers now face. Sirius also asked that the FCC initiate rulemaking on the WCS technical standards in Part 27.

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NAB Meets with FCC to Discuss Sirius' Proposed Repeaters in Alaska and Hawaii

On February 05, 2007, NAB and the Alaska Broadcasters Association met once again with the FCC specifically to discuss Sirius's proposed repeaters in Alaska and Hawaii. Evidently, they tried to point out that Sirius' satellite coverage was inadequate to cover the location where Sirius would like to locate the repeaters. They distributed a map of the elevation angles for Sirius. It was curious that they used elevation angles from Sirius' PROPOSED geostationary satellite (FM-5) and not their present satellite constellation. We have to question if they knew what they were talking about using this map to make their case. The map below was used from the original application for clarity. It is the same as presented to the FCC. Click on the map for a larger image.

















It proves nothing about the coverage of Sirius' coverage today. Hope the FCC got a good laugh. The point NAB is trying to make is that if Sirius' satellites can't cover Alaska and/or Hawaii, then repeaters would not be allowed under FCC rules. They need to go back and do their homework. If nothing else, the map show that no matter how horrible the reception might be, there will be some level of signal from the satellite--however small--that will reach these locations.

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NAB Renews Plea For FCC Recall of 'Unlawful' Satellite Radio Devices

As many of you have heard, NAB renewed its plea the the FCC to recall non-compliant satellite radio FM modulators. You can read the letter from the NAB website here.

The plea was in response to a New York Times article by Jacques Steinberg titled, "A Mystery Heard on Radio: It's Stern Show. No Charge.", dated January 26, 2007 at p. A17.

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Saturday, February 10, 2007

WSI InFlight Weather Service Transition to Sirius

On February 8, 2006, WSI announced that it had partnered with Sirius Satellite Radio to provide aviation weather information for aircraft flying within the Sirius footprint as part of the WSI InFlight system. Sirius entertainment will also available for passengers.

To aid in the transition, WSI has provided a Frequently Asked Questions (Faq) file to answer questions for the transition from the present equipment to the Sirius enabled equipment. According to this Faq file, the Sirius equipment will be available in April 2007. To help with the transition, WSI is offering a $1,200 rebate once the new equipment is installed. Existing displays will be compatible with the Sirius AV300 and AV350 receivers. The existing service will remain available through September 2007. Audio services will be offered as a separate subscription directly to Sirius.

This service competes directly with XM's WxWorx on Wings weather service.

On January 04, 2007, XM announced a swap out of the WSI Weather Channel Marine package that is also being phased out with the Wx Master Mariner package for $495. Expect XM to offer a similar swap-out for the WSI avionics equipment being phased out.

There is an interesting article concerning the two services published in May 2006 on the Avionic International website. WSI expressed concern over the transition to the new service:

“We are absolutely concerned that we will lose customers in the transition,” said Jim Menard, general manager for transportation at WSI.

XM will likely ensure that that concern is well founded.

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Friday, February 09, 2007

Sirius Patents Antenna for Improved Reception

Sirius recently patented an improved satellite radio antenna. It is very rare that one sees a new Sirius patent. XM has nearly 4 times the number of patents and applications. We almost missed this one.


United States Patent 7,167,128
Akturan January 23, 2007

Modular patch antenna providing antenna gain direction selection capability

Abstract

A modular patch antenna includes a first module and a second module. The first module comprises a first metal or metal plated radiating layer, a second, middle dielectric layer, and a third metal or metal plated ground layer; the second module comprises a frame that attaches to or fits onto the periphery of the first module and comprises a dielectric layer, or the same three layers as the first module. The first module provides favorable satellite signal reception. By superimposing the second module around the first module, the antenna provides improved terrestrial signal reception. This capability could apply to Satellite Digital Audio Radio Systems systems. This provides capability of changing the antenna gain beam direction towards the desired signals at a user's location. Users of such systems can perform this function manually.


Inventors: Akturan; Riza (Edgewater, NJ)
Assignee: Sirius Satellite Radio, Inc. (New York, NY)
Appl. No.: 10/678,463
Filed: October 3, 2003

Current U.S. Class: 343/700MS
Current International Class: H01Q 1/38 (20060101)
Field of Search: 343/700MS,846,873



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WCS Coalition Opposes XM's Repeater at Harrah's

On Monday, it was reported that XM filed an application to operate a replacement repeater at Harrah's Casino Hotel. Yesterday, the WCS Coalition, on queue, filed an opposition to the application. It was the same old arguments, saying that XM had not demonstrated the need for a "high" powered repeater nor had XM stated why the need couldn't be filled with several low powered repeaters. It would seem to be a dead issue, due to the FCC's decision to defer the WCS Coalition's argument over peak versus average power. The repeater will operate at an average of 1,068 Watt EIRP, or 5,500 Watt peak EIRP. The Coalition would like to ban all new repeaters above 2,000 Watt peak EIRP. Hopefully, the FCC will dismiss this opposition as moot.

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Followup to PGA Tour Repeater Grant

On Wednesday, it was reported that the FCC granted XM the authority to operate a repeater at PGA events for 180 days. A few more details came out today. The FCC accepted XM's application "as is". The excerpt below is cited from the FCC release today:

On February 7, 2007, the Satellite Division granted special temporary authority to XM Radio Inc. (XM) to operate one terrestrial repeater with a power level less than 2 kW EIRP at weekly PGA Tour events occurring at various locations from February to July 2007 as set forth in Exhibit A to its application, pursuant to the technical parameters specified in its application and subject to conditions. The issue concerning EIRP raised by the WCS Coalition will be addressed as part of the rulemaking pending in IB Docket No. 95-91.

No additional conditions were applied. The last sentence drove a stake in the heart of the WCS Coalition's key argument over average versus peak power. The FCC essentially said they would defer any decisions on that matter until final rules regarding repeaters were resolved. The parties have been working at this since 1997. Both XM and Sirius have recently made proposals. The Coalition has not been engaged in proposing rules, only complaining about the proposals presented by the satcasters. Until they become engaged, the rules regarding repeaters won't be resolved.

This takes away this argument from the Coalition for the time being and is a significant victory, particularly for XM.

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FCC Grants XM Authority to Operate Very Low Power Repeaters

Today, the FCC granted XM authority to operate very low power repeaters and signal boosters at trade shows for 180 days. It's about time the FCC acted on this. There was no opposition to it.

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Thursday, February 08, 2007

XM Files Another Patent Application to Operate Satellites in Tundra Orbit

XM had yet another application published today for the operation of satellites in tundra orbits. One has to wonder what all this activity is about. XM's present satellites operate in a geostationary orbit in the Clark belt, as we understand it. Sirius' satellites operate in tundra orbits.

The first patent we kind of blew off as some relic of the past. The European application was just a follow up to that, it seemed. That they are actively working of the idea is another matter. Do they plan to change their constellation? Probably not, but still... Are they going to use this against Sirius? Is this why Sirius now plans to put a satellite in geostationary orbit? Are they planning satellite radio elsewhere where this type of constellation might be useful? The application only references the US. This is curious.



United States Patent Application 20070032191
Kind Code A1
Marko; Paul D. February 8, 2007

Method and apparatus for selectively operating satellites in tundra orbits

Abstract

A satellite system provides geosynchronous satellites in elliptical orbits in respective elliptical orbital planes separated by 120 degrees. The satellites traverse a common figure-eight ground track comprising northern and southern loops. The satellites are controllably switched to operate the satellite currently traversing the northern loop to deliver a selected signal (e.g., a selected frequency signal) to satellite receivers.


Inventors: Marko; Paul D.; (Pembroke Pines, FL)
Correspondence Name and Address:
    ROYLANCE, ABRAMS, BERDO & GOODMAN, L.L.P.
1300 19TH STREET, N.W.
SUITE 600
WASHINGTON,
DC
20036
US
Serial No.: 543916
Series Code: 11
Filed: October 6, 2006

U.S. Current Class: 455/12.1
U.S. Class at Publication: 455/012.1
Intern'l Class: H04B 7/185 20060101 H04B007/185























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Wednesday, February 07, 2007

FCC Grants XM's Request to Operate a Repeater at PGA Events

After the PGA Tour intervened on XM's behalf, the FCC granted XM authority to operate a repeater at the PGA events for the next 180 days. This is great news for XM. The WCS Coalition has had this bottled up at the FCC since November 14, 2006. It's a major victory for XM. The grant has not yet been made publicly available, so we don't know if any restrictions were applied.

It was a very positive letter that the PGA Tour sent to the FCC on XM's behalf. It was good to see XM's partner step up to the plate.

It is of interest to note that Nate Davis has been meeting directly with the FCC lately.

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King of All Media

Howard Stern wants to make it official--he is the King. Last September, he applied for the trademark. We missed it then. It was only recently turned over to the examiner (January 31). Yesterday, it was approved for publication. In approximately 2 months, it will be published for opposition. It is a long process before it becomes official.

Serial Number: 78970100 Assignment Information

Registration Number: (NOT AVAILABLE)

Mark


(words only): KING OF ALL MEDIA

Standard Character claim: Yes

Current Status: Approved by the examining attorney for publication for opposition. This is NOT the beginning of the Opposition period. In approximately two months, please visit the web site to learn the actual date of publication for opposition in the Trademark Official Gazette.

Date of Status: 2007-02-06

Filing Date: 2006-09-08

Transformed into a National Application: No

Registration Date: (DATE NOT AVAILABLE)

Register: Principal

Law Office Assigned: LAW OFFICE 109

Attorney Assigned:
GOODMAN WENDY BETH Employee Location

Current Location: L9X -TMEG Law Office 109 - Examining Attorney Assigned

Date In Location: 2007-02-06


LAST APPLICANT(S)/OWNER(S) OF RECORD

1. Stern, Howard

Address:
Stern, Howard
c/o One Twelve Inc. 600 Madison Avenue
New York, NY 10022
United States
Legal Entity Type: Individual
Country of Citizenship: United States


GOODS AND/OR SERVICES

International Class: 041
Class Status: Active
Entertainment services, namely, live and recorded performances and radio, satellite, and television broadcast performances, all by a radio, satellite radio and television personality featuring humorous observations of the human condition
Basis: 1(a)
First Use Date: 1994-00-00
First Use in Commerce Date: 1994-00-00


ADDITIONAL INFORMATION

(NOT AVAILABLE)


MADRID PROTOCOL INFORMATION

(NOT AVAILABLE)


PROSECUTION HISTORY

2007-02-06 - Approved for Pub - Principal Register (Initial exam)

2007-02-06 - Examiner's Amendment Entered

2007-02-06 - Examiners Amendment -Written

2007-01-31 - Assigned To Examiner

2006-09-13 - New Application Entered In Tram


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