SiriusXM Asks FCC Permission to Raise Rates

Published March 31, 2011

In 2008, Sirius and XM agreed to a two-year price cap as a condition for receiving Federal Communications Commission approval of the merger of the two satellite radio stations. Now that two years have passed, SiriusXM is seeking permission from the FCC to raise prices.

Although some consumer advocates argue the FCC should keep price restrictions in place, the company counters that the increases are needed in order to make capital improvements.

SiriusXM argues the FCC’s initial anti-competitiveness concerns from 2008 no longer apply as a result of competition from Internet-based radio, which is readily available to people not only on desktop computers but also iPhones, iPads, and other “smart” handheld devices that are more readily available now than when the merger was announced.

‘Waste of Taxpayer Money’

The FCC and U.S. Department of Justice took a long time in approving the merger—so long that some financial analysts said the value of the combined company was hurt—and certainly long enough for a thorough examination of the pricing and competition issues at the time, said Scott Testa, an associate professor of business at Cabrini College in Philadelphia.

“Their pricing [to customers] is the least of the FCC’s issues,” Testa said. “There exists a very small percentage of people listening to satellite radio. That’s why the two companies merged. It’s hard enough for them to cover their huge fixed costs. For the FCC and the Justice Department to spend their time trying to control SiriusXM prices is just a waste of taxpayer money.”

The government shouldn’t have been telling anyone what prices they should be charging, agrees Steve Titch, a telecom policy analyst for the Reason Foundation, a public policy research institute in Los Angeles, California. “The government shouldn’t be regulating or setting prices,” he said.

“When Sirius and XM agreed to the price freeze, it wasn’t with the idea that it would be permanent,” Titch noted. “There’s Pandora and a lot of other Internet-based radio that SiriusXM competes with in the home. In the car, it competes with [traditional] radio, MP 3 players, and other entertainment. Now that the merger happened, the government should allow SiriusXM to set its own pricing rules.”

‘Bad Policy from Beginning’

The government should make this ruling quickly so that SiriusXM can move forward with its business plans, Titch said.

Titch identified the SiriusXM price cap as an “anomaly.”

“The FCC doesn’t rule on pricing for FM advertising,” he said. “Apple’s iTunes doesn’t have a ceiling on what it can charge for its content. Netflix doesn’t have a government-imposed price ceiling on what it can charge for streaming video.”

His conclusion about the cap: “It should be kicked out. It was put in place because the government took an antitrust approach with the merger, seeing Sirius and XM as a single industry rather than part of an entertainment microcosm. It was bad policy to begin with.”

Phil Britt ([email protected])writes from South Holland, Illinois.