[Senate Hearing 110-135]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-135
 
  THE XM-SIRIUS MERGER: MONOPOLY OR COMPETITION FROM NEW TECHNOLOGIES 
=======================================================================
                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 20, 2007

                               __________

                          Serial No. J-110-21

                               __________

         Printed for the use of the Committee on the Judiciary

                              -------

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37-565 PDF                 WASHINGTON DC:  2007
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                 COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
      Michael O'Neill, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
PATRICK J. LEAHY, Vermont            ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         SAM BROWNBACK, Kansas
BENJAMIN L. CARDIN, Maryland         TOM COBURN, Oklahoma
                     Jeffrey Miller, Chief Counsel
                William Castle, Republican Chief Counsel





















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
    prepared statement...........................................    83
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     9

                               WITNESSES

Balto, David, Attorney at Law, Law Office of David Balto, 
  Washington, D.C................................................     8
Karmazin, Mel, Chief Executive Officer, Sirius Satellite Radio, 
  New York, New York.............................................     3
Quass, Mary, President and Chief Executive Officer, NRG Media, 
  LLC, Cedar Rapids, Iowa........................................     4
Sohn, GiGi B., President, Public Knowledge, Washington, D.C......     6

                         QUESTIONS AND ANSWERS

Responses of David Balto to questions submitted by Senator Kohl..    34
Responses of Mel Karmazin to questions submitted by Senator Kohl.    37
Responses of Mary Quass to questions submitted by Senator Kohl...    46
Responses of GiGi B. Sohn to questions submitted by Senator Kohl.    47

                       SUBMISSIONS FOR THE RECORD

Balto, David, Attorney at Law, Law Office of David Balto, 
  Washington, D.C., statement....................................    53
Common Cause, Consumers Union, The Consumer Federation of 
  America, Free Press, Media Access Project, and Prometheus Radio 
  Project, joint statement.......................................    65
Karmazin, Mel, Chief Executive Officer, Sirius Satellite Radio, 
  New York, New York, statement..................................    73
Quass, Mary, President and Chief Executive Officer, NRG Media, 
  LLC, Cedar Rapids, Iowa, statement.............................    84
Sohn, GiGi B., President, Public Knowledge, Washington, D.C., 
  statement......................................................   110


  THE XM-SIRIUS MERGER: MONOPOLY OR COMPETITION FROM NEW TECHNOLOGIES

                              ----------                              


                        TUESDAY, MARCH 20, 2007

                                       U.S. Senate,
                                Committee on the Judiciary,
Subcommittee on Antitrust, Competition Policy and Consumer 
                                                    Rights,
                                                     Washington, DC
    The Committee met, Pursuant to notice, at 2:23 p.m., in 
room 226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Also present: Senators Hatch and Brownback.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Chairman Kohl. Good afternoon. This hearing will come to 
order.
    Today we are meeting to consider the proposed merger 
between the Nation's only two national satellite radio 
services, XM and Sirius. This merger would eliminate 
competition between the only two satellite radio providers.
    We all agree that there's no prospect for a new satellite 
radio company to enter the marketplace, but that does not enter 
our analysis. The question is not merely whether this merger 
would create a monopoly in satellite radio, but whether 
satellite radio is a distinct market so that consumers will 
have no real alternative should the combined company raise its 
price.
    XM and Sirius provide a very attractive service, of 
hundreds of channels of music, entertainment, sports, news, and 
special interest content to consumers, broadcast in crystal-
clear sound quality.
    Much of their content, whether specialty music channels, 
out-of-town broadcasts of pro football or major league 
baseball, major entertainment talent such as Oprah Winfrey or 
Howard Stern, is unique to satellite radio and is not 
duplicated by conventional over-the-air broadcasts.
    Unlike the air radio, satellite radio is a mobile national 
service and its channels are available in every city and every 
rural area throughout the Nation. The merging companies and 
others who defend this deal argue that there exists ample 
competition from free over-the-air radio and from new 
technologies, such as wireless Internet radio and the I-Pod, so 
that we should not worry. As a result, they argue the combined 
company will have no power to raise prices.
    But we must view these claims with a healthy degree of 
skepticism. Over-the-air radio does not come close to 
duplicating the impressive array of program offerings of 
satellite radio. It also appears to us that I-Pods and other 
new technologies are either too new, too expensive, or 
altogether too different from satellite to be included in the 
same market definition.
    Mr. Karmazin, the last time you came before us was in 1999 
when you were supporting the CBS-Viacom merger. At that time, I 
told you that we thought that deal created more synergy than 
suspicion, and we did not oppose the deal.
    So the burden of proof is squarely on you, Mr. Karmazin, to 
prove to us that our suspicions regarding monopoly and market 
power here today are unfounded.
    While we do not doubt that this deal will turn out to be 
good for you and your shareholders, we have real worries that 
what may be a fabulous monopoly for you will be a real bad deal 
for consumers.
    So, you must explain to us why competition truly exists in 
the market. Most of all, you must convince us that the 
consumers will not be harmed and forced to pay more once you 
have merged with your competitor.
    We all look forward to your testimony and to that of the 
other members of this distinguished panel of witnesses here 
today.
    [The prepared statement of Senator Kohl appears as a 
submission for the record.]
    Our witness introductions. The first person from whom we 
will hear today is Mr. Mel Karmazin. Mr. Karmazin is the CEO of 
Sirius Satellite Radio, a position he has held since 2004. 
Previously, Mr. Karmazin has served at the highest levels of 
Metro Media, Infinity Radio, CBS Corporation, and Viacom, and 
we appreciate your being here. We welcome you here today, Mr. 
Karmazin.
    Our second witness is Ms. Mary Quass, the president and CEO 
of NRG Media in Cedar Rapids, Iowa. NRG operates 84 radio 
stations, including 16 in Wisconsin. The past 3 years, she has 
been named one of the 40 most powerful people in radio. Senator 
Grassley wanted to be here today to introduce you, Ms. Quass, 
but he has been detained by a number of scheduling conflicts.
    Our next witness is Ms. Gigi Sohn. She is the president and 
co-founder of Public Knowledge, a nonprofit organization that 
addresses communication policy and intellectual property law. 
She has served on the faculty of a number of universities and 
nonprofit and governmental boards where she lends her expertise 
on these issues, and we thank you for joining us here today.
    Our final witness is Mr. David Balto. Mr. Balto has 
practiced antitrust law for more than 40 years, including 
stints at the Justice Department and as Policy Director of the 
FDC's Bureau of Competition. He is a prolific author on 
antitrust and consumer protection, among many other issues. We 
welcome you back to the subcommittee, Mr. Balto, and we look 
forward to your testimony.
    Before we start with the testimony, would you all please 
stand and raise your right and take the following oath?
    [Whereupon, the witnesses were duly sworn.]
    Chairman Kohl. We thank you so much.
    Mr. Karmazin, we would be delighted to take your testimony.

  STATEMENT OF MEL KARMAZIN, CHIEF EXECUTIVE OFFICER, SIRIUS 
              SATELLITE RADIO, NEW YORK, NEW YORK

    Mr. Karmazin. Thank you, Chairman Kohl. Before February 19 
when we announced our merger, the Board of Directors of both XM 
and Sirius were advised by very knowledgeable, very prominent 
regulatory agency lawyers and they told us that, in order to 
get this merger approved, we were going to have to get over two 
hurdles.
    One hurdle was that we would need to demonstrate that the 
merger is not anti-competitive, and second, we would need to 
demonstrate that it is in the public interest.
    We believed then, and we believe more so today, that this 
merger will accomplish both of those things. We clearly believe 
that the competition that satellite radio faces is very robust 
and very intense, and will be so after the merger.
    Though some people will talk about the fact that this is a 
monopoly, or this is a duopoly that is going to become a 
monopoly, the reality is that satellite radio competes with an 
awful lot of audio entertainment services.
    We compete with terrestrial radio, the AM and FM stations, 
we compete with HD radio, which there's about 1,100 radio 
stations. We compete with Internet radio. We compete with cell 
phones that, when hooked up to blue tooth in a car, are able to 
get as many programming choices as we have. We compete with MP3 
players.
    We provide music, our competition provides music. We 
provide news, our competition provides news. We provide 
entertainment, our competition provides entertainment. We 
provide sports, our competition provides sports. There is no 
question that there is robust competition in this area.
    In the most recent Arbitron report which measures radio 
listening, the combined satellite radio audience is 3.4 
percent: 96 percent of the people are not listening to 
satellite radio. There are 237 million cars on the road today 
that have AM and FM radio. The AM and FM radio stations reach 
230 million people. The whole idea of the Internet is growing 
extraordinarily. There are so many more audio choices than 
there has ever been before.
    The NAB, which has become the most vocal opponent of our 
merger, has made many statements about the face of the 
competitive marketplace. Of course, that is before they came 
out against our merger.
    In the broadcast ownership proceedings just two months ago, 
the NAB said, ``The current media marketplace is robustly 
competitive and, indeed, bursting at the seams with consumer 
choice.''
    If you look at the public filings of all of the radio 
companies that they make with the SEC, every single one of them 
says that they compete with satellite radio. In 1998, when 
Sirius first got its license, and every single year since then, 
we have filed with the SEC and have said that we compete with 
terrestrial radio. So, there is no way of looking at the market 
and saying that satellite radio is only competing with XM and 
Sirius.
    Let me assure you that Sirius, with our 6 million 
subscribers, and XM, with 7.6 million subscribers, competes 
with Clear Channel with 107 million weekly listeners, and CBS 
radio, with 53 million weekly listeners, as well as all of 
these other competitors.
    I believe I have shown you all of the competition that we 
compete with, but I would like to turn my attention now to what 
the public interest standard would be. In that particular case, 
I think it is very easy, because in the case of making why this 
merger is good for the public interest, we offer two things: 
one is lower prices, the other is more choice.
    So today, if you are a consumer and you want to get 
satellite radio and you like major league baseball and you like 
the NFL--Sirius has the NFL and XM has major league baseball--
you need to buy two radios, you need to have two subscriptions, 
you need to have both mounted on your car, and it is a very 
cumbersome, very difficult thing for consumers to do.
    After the merger, what we have said is the fact that we 
would offer a service that would be taking the best of both 
companies and doing it for lower prices than are currently 
offered.
    So today you would need to have two subscriptions, $25.90 a 
month. We're saying, after the merger, that you will be able to 
get it for substantially lower than that $25.90, and you won't 
need two radios, and the existing radio will not be obsolete.
    And after the merger, for the first time, we will have a 
lower-priced entry point. So today, the cheapest way you can 
get satellite radio is if you pay $12.95.
    We have said that we would create a lower-priced package. 
The reason we can create a lower-priced package, is that there 
are substantial synergies that come about for our shareholders 
as a result of that merger.
    What we are prepared to do is take some of that synergy and 
pass it on to the consumer in the form of lower prices. We have 
also said publicly that what we are saying, you can hold us 
accountable for in the form of making sure that there are these 
lower prices and more choice.
    One of the reasons you should understand as to why the NAB 
is against this, is why it is so good for consumers. The reason 
is that if in fact this merger happens, there will be lower 
prices and more choice for the consumer.
    Therefore, that consumer will spend more time listening to 
satellite radio, and they have said that if the consumer spends 
more time listening to satellite radio they will, therefore, be 
spending less time listening to their member stations.
    So, Senator, thank you for listening. I look forward to 
answering any of your questions.
    [The prepared statement of Mr. Karmazin appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Karmazin.
    Ms. Quass?

  STATEMENT OF MARY QUASS, PRESIDENT AND CEO, NRG MEDIA, LLC, 
                       CEDAR RAPIDS, IOWA

    Ms. Quass. Good afternoon, Chairman Kohl. I appreciate the 
opportunity to be here. My name is Mary Quass. I'm the 
president and CEO of NRG Media, which owns and operates local 
AM and FM radio stations in Wisconsin, Iowa, Kansas, Illinois, 
Minnesota, Nebraska, and South Dakota.
    I am testifying today on behalf of the National Association 
of Broadcasters, where I currently serve as a member of the NAB 
Radio board. I am here to voice opposition to the proposed 
merger of this country's only two satellite radio companies, XM 
and Sirius.
    Satellite radio is a national radio service that provides 
hundreds of audio programming channels to listeners across the 
United States. There are only two such services and they 
compete against each other in a national marketplace.
    The undeniable fact is that XM and Sirius want government 
permission to take two competitive companies and turn them into 
a monopoly. If this government-sanctioned monopoly is approved, 
consumers will be the losers as there will be no competition to 
restrain monopoly rates and the power that comes with it.
    Innovation and program diversity will suffer. Neither 
listeners nor advertisers will benefit. Let's remember that 
when the FCC allocated spectrum to Sirius and XM in 1997, it 
specifically ruled against a single monopoly provider.
    The commission foresaw the dangers of a monopoly. It 
explicitly licensed more than one provider to ensure intra-
market competition and to prohibit one satellite radio provider 
from ever acquiring control of the other. There is no reason to 
change that now.
    XM and Sirius, by their own admission, are not failing 
companies. Their current highly leveraged position is due to 
extraordinary fees paid for marketing and on-air talent, 
including the $500 million contract that Sirius awarded to 
Howard Stern, and the $83 million bonus just this last year.
    But even with these costs, XM and Sirius have made clear 
that they can succeed without a merger. I've heard that these 
companies claim that no one should worry about this monopoly 
because local radio competes against XM and Sirius.
    Let's be clear. Radio broadcasters do not compete in the 
national market of the satellite radio companies, but XM and 
Sirius do compete in the local radio markets, markets where I 
operate every day, markets like Warsaw, Wisconsin.
    Local radio stations can only broadcast within their FCC-
defined coverage area. Local broadcasters' signals are not 
nationwide and are not available by subscription. The national 
availability of satellite radio sets it apart from local 
broadcasters.
    NRG Media operates in small and medium markets like 
Janesville, Wisconsin, Spirit Lake, Iowa, and Salina, Kansas. 
We understand that localism is our franchise and that we have a 
unique connection to the listeners that no other medium 
provides.
    We are the voice of the community in times of emergencies, 
like the recent ice storms in Kansas and Iowa, and for many of 
these areas that are no longer served by other local newspapers 
and outlets, we may be the only link to airing community 
information and things like obituaries.
    XM and Sirius, by contrast, offer a prepackaged bundle of 
national mobile, digital audio channels. WSJY in Ft. Atkinson, 
Wisconsin delivers outstanding local news, sports, and 
entertainment. Consumers, however, would never consider my 
station's local programming to be comparable to a product on 
Sirius on one of their 133 channels, or XM's 170.
    A local radio station's programming is clearly not a 
substitute for the array of services offered by XM and Sirius. 
Services like XM and Sirius compete with each other and no one 
else in the national satellite radio market.
    I can understand why they would want a monopoly, but that 
does not mean that it is in the best interests of the public. 
Five years ago, the only two nationwide TV satellite licensees, 
Echo Star and Direct TV, proposed a merger that looked an awful 
lot like this one. They failed.
    Indeed, the Department of Justice filed a complaint to 
block the merger and the FCC decided unanimously that the 
merger was not in the public interest. An XM and Sirius merger 
is not either.
    For these reasons and others, I respectfully ask you to 
urge regulators to just say no to this government-sanctioned 
monopoly. Thank you.
    [The prepared statement of Ms. Quass appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Ms. Quass.
    Ms. Sohn?

    STATEMENT OF GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE, 
                         WASHINGTON, DC

    Ms. Sohn. Thank you, Chairman Kohl.
    The proposed merger presents a dilemma for public interest 
advocates. On one hand, the only two providers of satellite 
radio, which have vigorously competed for the past 5 years, are 
seeking to consolidate, raising questions about the impact on 
prices and choice for consumers.
    On the other hand, this vigorous competition has led to a 
spending war for programming, leaving both competitors weakened 
in a world where other multi-channel music, entertainment, and 
information services have become increasingly popular.
    Regardless, the salient question is this: how will 
consumers be better off? Will they be better off with one or 
two weak companies or with one strong company that is subject 
to conditions that protect consumer choice, promote diverse 
programming, and keep prices in check? I believe that if the 
merger passes antitrust scrutiny, the latter will best serve 
consumers.
    The antitrust questions raised here are very complex and 
ultimately depend on information to which Public Knowledge does 
not have access. Despite the availability of an increasingly 
wide variety of radio, wireless, mobile, and multi-channel 
music services, it is unclear whether consumers would turn to 
these services if satellite radio prices were raised. Data on 
how and why consumers choose to spend their money on satellite 
radio and other data would be helpful in making that 
determination.
    Even if the merger survives initial antitrust scrutiny, 
however, significant competitive concerns remain. Therefore, 
the merger should be approved only if it is subject to the 
following three conditions.
    First, the new company should make available to its 
customers tiered program choices. For example, the company can 
make a music tier or a sports tier available to consumers which 
would cost less than subscribing to the entire service.
    Second, the new company should ensure programming diversity 
by making available 5 percent of its capacity for non-
commercial educational and informational programming over which 
it has no editorial control. This would resemble a similar 
requirement for DBS providers.
    Third, the new company should be prohibited from raising 
prices for its combined programming package for 3 years after 
the merger is approved. In addition, policymakers should 
determine whether the new company should divest all, or some, 
of the extra spectrum it will have as a result of the merger.
    There are several reasons why we believe that a properly 
conditioned merger would be in the public interest. First, 
consistent losses and slowing subscribership at both companies 
make it less likely that they will take a chance on alternative 
programming and programming that meets the needs of under-
served communities.
    A combined subscriber base would allow the new company to 
distribute the high fixed cost of a satellite system across a 
larger consumer base, reducing the cost per subscriber and 
enabling new programming and/or lower prices.
    Second, consumers would gain access to channels that they 
would not receive unless they subscribed to both services. 
Third, eliminating duplicative channels will create more 
capacity for new and diverse programming.
    I will conclude by raising two other concerns. First, 
Public Knowledge opposes any merger condition involving 
limitations on the ability of consumers to record satellite 
radio services. Such a condition would be tantamount to 
repealing the Audio Home Recording Act, which specifically 
protects a consumer's ability to record digital music.
    Second, we also oppose any merger condition that would 
limit satellite radio from providing local programming. 
Broadcasters' opposition to this merger is hypocritical, given 
their own current regulatory efforts to consolidate and their 
decade-long history of attempts to hobble satellite radio 
services with content and other regulatory restrictions that 
are themselves anti-competitive.
    Even assuming that broadcasters take seriously their duty 
to serve local communities, there is no reason why, in 2007, 
any media service should have a government-granted monopoly 
over local programming. Regardless of the current satellite 
radio companies' intent to provide local service, future 
services should not be barred from doing so.
    While broadcasters like to talk a lot about having a level 
playing field, their support of programming limits and 
opposition to paying the same performance fees to artists that 
all other radio services pay instead reveal the industry's 
desire for government-sanctioned competitive advantage.
    I look forward to your questions.
    [The prepared statement of Ms. Sohn appears as a submission 
for the record.]
    Chairman Kohl. Thank you, Ms. Sohn.
    Mr. Balto?

STATEMENT OF DAVID BALTO, ATTORNEY AT LAW, LAW OFFICE OF DAVID 
                     BALTO, WASHINGTON, DC

    Mr. Balto. Chairman Kohl, thank you for inviting me to 
testify before the hearing today. I'm here to answer three 
questions for the committee: is satellite radio the relevant 
market for antitrust analysis? The answer is yes. Does this 
merger pose significant anti-competitive effects? The answer is 
yes.
    Is the promise of regulatory relief an adequate substitute 
for competition? The answer is, absolutely not. Agreeing to 
some form of regulatory relief to substitute for competition is 
a Faustian bargain which history has shown never pays off for 
consumers.
    Let's go through each of those three points. Listening to 
the speakers today I was reminded that 10 years ago Staples and 
Office Depot sought to merge in away that is really similar to 
this merger. Two innovative companies that had created a new 
product said, it's time to call a truce, let's merge.
    When they attempted to justify the merger, they said 
everything you can buy in an office supply superstore you can 
buy someplace else. We account for only 6 percent of the total 
sales of office supplies in the United States. The FTC 
challenged the merger and the court enjoined it.
    What the court said was the mere fact that a firm may be 
termed a ``competitor'' in the overall marketplace does not 
necessarily require that it be included in the relevant product 
market for antitrust purposes.
    When the court looked at what office supply superstores 
offered, it said Staples and Office Depot offered was something 
different than what was offered by all these other forms of 
distribution that sold identical products. The same is true of 
XM and Sirius and the alternatives that they suggest are 
competitors.
    Let's just look at that. Turn to page 3 of my testimony and 
look at this statement from Sirius's web site: ``The biggest 
difference between Sirius is that it's commercial-free, it 
offers you music the way it should be, it gives you the breadth 
of programming no one else can match, and we give you live 
entertainment.''
    In my testimony I described how satellite radio is 
different than every alternative that the parties have 
mentioned: they have the capability of aggregating demand; they 
provide you ubiquitous service wherever you go; they provide 
you a greater level of product variety; they provide diverse 
formulated programming; they have DJs who figure out what the 
most entertaining forms of media are; then finally, although 
I'm not sure this is a credit to society, they provided 
unregulated content. I think if you look at each of those 
factors, you'll see that satellite radio is different.
    But the key factor is, do these alternatives to satellite 
radio have the power to constrain price increases? That is not 
the case. Satellite radio has been able to increase prices in 
the past, unrestrained by other alternatives.
    The second factor, are there concerns about competitive 
effects? Absolutely. The most problematic merger is one that 
creates monopoly. Why? Because the antitrust laws don't allow 
us to go in after the fact and second-guess the decisions the 
monopolist makes and say, for example, you're charging too high 
a price.
    These parties have said don't worry about the merger--we 
don't compete as aggressively with each other, but that's 
belied by the statements on their 10(k) and on their web sites.
    They are also suggesting don't worry, there's new 
technology that's right around the corner that's going to 
change everything.
    When I was an FTC staff attorney we heard that argument all 
the time and we accepted it when that technology looked like it 
was truly right around the corner. The Merger Guidelines and 
the law make clear that, for new alternatives to be in the 
market, to serve as a likely restraint on anti-competitive 
conduct, they have to be timely, likely, and sufficient to 
prevent competitive harm. And by timely, we mean a 2-year 
period.
    Now, I don't think those alternatives can meet that 
standard, but even if they could, none of them offer the 
cluster of services that are offered by satellite radio.
    Finally, let's talk about the promise of a benevolent 
monopolist--the merging party's promise not to increase prices. 
I'm here to tell you what you already know. In over 100 years 
of the Sherman Act, courts have almost never permitted anti-
competitive conduct or anti-competitive mergers based on a 
promise not to increase prices.
    Sometimes State regulators have agreed in the context of 
hospital mergers to cap prices and consumers have suffered. At 
the end of the day, you're left with a monopolist and a 
monopoly is forever. Consumers suffer through higher prices and 
less service.
    In ways, the promises here remind me of the movie, ``It's a 
Wonderful Life''. You will remember, Mr. Potter makes an offer 
to George Bailey to sell out to his bank, which would give him 
an monopoly. Well, we know from the movie what would have 
happened if that had occurred. There would have been less 
affordable housing, fewer small businesses, and the loss of 
countless other benefits for consumers.
    Now, I'm not suggesting the management of the merging 
satellite radio monopoly have the nefarious desires of Mr. 
Potter. However, Mr. Kapra teaches an important lesson for this 
committee, and for antitrust enforcers: it is only competition 
that can guarantee consumers the full range of benefits in 
terms of low prices, better services, and greater choice. 
Nothing can replace competition.
    [The prepared statement of Mr. Balto appears as a 
submission for the record.]
    Chairman Kohl. Thank you for your statement.
    Before we start with our questions, we very much want to 
recognize and welcome the Ranking Member on this committee, 
Senator Orrin Hatch. We'd like to hear whatever comments he 
wishes to make.

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE 
                            OF UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I am sorry I 
am a little bit late to this hearing, because I know how 
important it is. It is an important antitrust set of questions.
    Does the merger of satellite radio's two broadcasters, XM 
and Sirius, violate antitrust law? Now, I have looked forward 
to this hearing and I certainly have enjoyed the papers that 
have been submitted.
    The question is, will consumers be held hostage by a 
monopoly that is able to charge exorbitant rates for services 
that cannot be found anywhere else? Will the efficiencies that 
are created permit additional services and content to be 
provided at the same cost to consumers?
    First, I think we've got to look at the legal question. In 
order to do that, we of course have to know what the law 
entails. Simply stated, there are three Federal antitrust laws 
applicable to horizontal mergers such as the one we're 
examining during this hearing.
    First, is Section 7 of the Clayton Act which prohibits 
mergers which ``may substantially lessen competition''. The 
second major statute is Section 1 of the Sherman Act, which 
prohibits mergers that constitute an unreasonable ``restraint 
of trade''. Finally, Section 5 of the Federal Trade Commission 
Act prohibits ``unfair methods of competition''.
    But these are general phrases which can mean a number of 
things, so how do we better define them? For that, many turn to 
the commentary on the horizontal merger guidelines of 2006, 
jointly published by the U.S. Department of Justice and the 
Federal Trade Commission.
    Though not formal governmental rules that bind these 
agencies' actions, they are widely consulted and exert a broad 
influence on antitrust analysis. So how do the commentaries 
interpret the laws we just described?
    The agencies state that ``the `core concern of the 
antitrust laws' is the creation or enhancement of market power. 
In the context of sellers of goods or services, `market power' 
may be defined as the ability to profitably maintain prices 
above the competitive levels for a significant period of time. 
Market power may be exercised, however, not only by raising 
price, but also by reducing quality or slowing innovation.''
    Therefore, that may be one of the central questions before 
us. Will this merger unlawfully create or enhance market power? 
How do we begin to answer this question? Once again, the 
guidelines provide a road map for us to launch our inquiry into 
the form of a five-part test which is used by the DOJ and FTC 
to analyze mergers.
    Now, I believe for this hearing that the first prong of 
that test, called market definition and concentration, offers 
us the greatest insight into the legality of this transaction, 
which leads us to examine how we would define the market in 
which XM and Sirius compete.
    The guidelines ``indicate that the relevant market is the 
smallest or narrowest collection of products in geographic 
areas which a hypothetical monopolist would raise prices.''
    In the case before us, that means we have to examine 
questions such as, satellite radio and terrestrial radio are 
part of the same market. If there are sub-markets, what role 
will future technologies, such as Internet radio, play in 
defining this market? Should consumer electronics like I-Pods 
be considered as part of this market, just to mention a few 
aspects?
    Now, these are important questions, Mr. Chairman. I 
appreciate the witnesses and their elucidation in these areas 
and, frankly, hope that we can do what is in the best interests 
of consumers, and also keep these innovative, really 
spectacular products moving ahead for the benefit of the 
American people. I will do everything in my power to try to 
make sure this comes out all right.
    Thanks, Mr. Chairman.
    Chairman Kohl. Thank you for your statement, Senator Hatch.
    Senator Brownback, do you have any comments to make?
    Senator Brownback. I don't, Mr. Chairman. I would like to 
ask questions, if I could, of the panel when the appropriate 
time comes. I want to thank you for holding this hearing. It's 
a topic I'm very interested in and would like to pursue with 
some questions for the panelists.
    Chairman Kohl. We appreciate your being here.
    We'll start with questions for Mr. Karmazin.
    Mr. Karmazin, critics of your deal claim that this deal 
with result in a monopoly, leaving customers with no choice but 
to pay a likely price increase whenever it occurs.
    Now, we know that you defend your merger by claiming that 
you won't have any power to raise price because you really 
compete with a multitude of ways consumers can obtain audio 
content. But as I said in my opening statement, the burden--and 
we all understand this--is on you to prove your position.
    So there are two major issues we need to examine today. 
First, will this merge give you the power to raise price to 
consumers? And second, how do we define the market? That is, 
what services and devices do you really compete with? So I'd 
like to start by asking some questions about the first issue.
    I know you promised not to raise prices right away, but a 
primary concern of antitrust analysis is not the promise, but 
the ability of the merged firm to raise prices after a merger, 
whatever promises are made before the merger.
    Mr. Karmazin, after this merger, consumers who wish to 
listen to satellite radio will have only one company from which 
to choose. So isn't it reasonable for us to believe that this 
merger will give the combined Sirius/XM the ability to raise 
the price for satellite radio consumers?
    And don't you believe that the consumer who has already 
decided to pay $12.95 for satellite radio would pay another 
dollar or two if you decided to raise the price after the 
merger?
    Mr. Karmazin. Thank you, Chairman. No, I do not believe 
that we have the ability to raise prices to a vast majority of 
the audience. If you think about it, we charge $12.95. And by 
the way, we've charged $12.95 from the day we began service 5 
years ago, so we have not raised our price ever.
    That includes when we only had 100 channels as compared to 
the approximately 135 channels. The reason that the price has 
not been raised is because we are competing with free. I don't 
quite understand how, if you raise your price a couple of 
dollars to $14.95, you'll be better off competing with free 
than if, in fact, you're competing with free.
    Also, the argument that says that we are competing with XM, 
if we had all of XM's subscribers, so instead of them having 
the 7.6 we managed to get all of them or they managed to get 
us, that is not a successful business. We're looking at the 300 
million Americans that are there today, not us winding up just 
with the number of people who are subscribing to satellite 
radio.
    So, our belief is that the vast majority, over 90 percent 
of the American public, are getting their radio for free. We 
want to convince them that our 43 cents a day that we charge is 
money well spent, and by raising the price we don't see it.
    But we've also said that, you know, we've set it, our 
actions have demonstrated it, that we have not raised our price 
in the 5-years for the reason I told you why we haven't, is 
that we are willing to be held accountable. If that's the 
issue, it seems simple. I mean, if the argument is that we're 
going to raise our price, we're not. We're not.
    So it sort of seems to me it solves that issue, and I'm 
sure somewhere in the government somebody could find a way to 
make sure that we don't raise our price if we're saying we 
aren't going to raise our price.
    Chairman Kohl. Well, when you say you're not going to raise 
the price, can we take you at your word and subject any price 
increases over the time duration of your company to some sort 
of ratification by some bureau, you know, of government?
    Mr. Karmazin. Excuse me. I'm open to working--
    Chairman Kohl. Some bureau of government.
    Mr. Karmazin. I'm sorry. I'm willing to work with the 
regulators on what we need to do to give assurance that, as a 
result of this merger, there's not going to be a price--as a 
matter of fact, what there is going to be, is a lower price. 
All right. A lower price.
    And we have said that, today, the lowest price entry is 
$12.95. We're going to offer a service that will be available 
for $8.95 or $9.95, or some lower price, mainly because of the 
synergy of the merger.
    You know, our company, last year, lost $1 billion. And by 
the way, the NAB representative is correct, we're not making a 
failing company argument. But we've lost $1 billion last year 
and we've lost, cumulatively, $3.8 billion. The way we make 
this company, is a profitable company. The way we do it, is by 
getting more subscribers. We don't see how you get more 
subscribers than you have today by raising the price.
    Chairman Kohl. Initially that's true. Then that's how you 
build a business. You keep your price at a certain point, and 
when your subscriber level gets to the point that you require 
it to be, and if you're in a monopoly business, if we could 
demonstrate that it is, then you raise your price.
    It's a business model which you have a perfect right to 
pursue, if we allow you to pursue it. There's nothing, per se, 
illegal about it. But again, you said we are not going to raise 
the price. You keep on saying that, and that's great.
    Are you, as a condition of merger then, ready to be 
regulated in terms of price increases, if at all, if ever or 
whenever, by having to go through some kind of an independent 
agency to get authority to do that? It's pretty much of a yes 
or a no. Are you?
    Mr. Karmazin. It's a yes or a no. I'm willing to say to you 
that we believe the marketplace will control it, and our 
statement. But if, in fact, there is any proposal or any 
condition, we would be open to hear exactly what it is because 
we want to do this merger, Senator.
    The reason we want to do it, is that there are benefits to 
our shareholders, which you've pointed out, and we're not 
ashamed of that. We believe that that is a fact. But we're 
willing to make it, also, a benefit to the consumer and we're 
open to sit and work with the FCC, and the DOJ, and this 
oversight Committee in giving you the assurance that what we're 
saying, we want to be accountable to. And I don't mean just for 
the first year or two.
    Chairman Kohl. So in theory, while you're not agreeing to 
this in fact, but in theory, you would be willing to consider a 
discussion that would subject any intended price increases to 
oversight, regulatory oversight?
    Mr. Karmazin. It seems--
    Chairman Kohl. Yes?
    Mr. Karmazin.--totally unnecessary, but it strikes me that 
if there's something you want us to consider, we'd be willing 
to consider something.
    Chairman Kohl. All right. I'll ask one or two more 
questions, then turn it over to Mr. Hatch.
    Let's talk about market definition, Mr. Karmazin. You 
contend other means of receiving radio entertainment, such as 
over-the-air radio, I-Pods, and Internet radio are all part of 
the same market.
    But even if we define the market this broadly, wouldn't it 
be appropriate to believe that Sirius and XM are their own two 
closest competitors? When we look at price and service 
competition and innovation, aren't you basically targeting each 
other today?
    Don't XM and Sirius offer a unique cluster of services in 
audio entertainment and news options not provided by any of the 
other entities? I recognize that you can get some of these on 
I-Pods, some on over-the-air radio, some by singing to 
yourself, in fact. But no one else offers the cluster of 
options, isn't that true?
    Isn't it true that Sirius and XM are your own primary and 
main competitors, that the services you offer--which is really 
what you're asking $12.95 for--are unique and distinct and 
different such that you can ask $12.95 a month, and maybe more? 
If you weren't offering a distinct service not obtainable in 
any other medium, how could you get away with charging $12.95 
when they're charging zero?
    Mr. Karmazin. And the reason for it is that we have 
convinced, at this point, between two companies, 13 million of 
the approximately 300 million Americans that the services that 
we offer are worth subscribing to.
    And if you ask me, do I think about how I'm going to get 
more of XM's subscribers, no, I think more about how I'm going 
to get more Clear Channel listeners to become subscribers.
    We do very little churn between the two companies. If you 
take a look at the number of people who leave one service and 
subscribe to the other, that number is very, very tiny. So the 
competition is free radio. It's not a technology that is going 
to be here 2 years or three years from now, it's technology 
that exists in the marketplace today.
    XM is a competitor, but I will tell you that CBS and Clear 
Channel are better competitors. If I had to set my sights on 
who is the one who I think about more, who is the one I'm 
looking to get subscribers from, it's far more from them, the 
terrestrial radio, than it is satellite.
    Chairman Kohl. Well, of course, because at the moment, 
because they've been in business all these years. You've only 
been in business for a few years. You haven't developed your 
model yet. You haven't figured out how to do it, which you 
will. Of course they have most of the customers at the moment 
for the business, and they're free. But they're your main 
competitor, I think.
    And Mr. Balto, I know you have some very strong feelings on 
that. Would you express yourself?
    Mr. Balto. Yes. Let me start off with just the point about 
regulation. Three things to keep in mind. First of all, a 
monopoly is forever. There's no question here, you're only 
going to have one satellite radio if you agree to this.
    Now, are you willing to agree to some form of regulation 
that also is forever? Because otherwise your grandchildren are 
going to be paying monopoly prices.
    Second, I think the FCC's record in regulating in this and 
adjacent areas is not a good one. If you look at the problems 
with cable regulation, they don't show a terrific record of 
being able to effecitvely regulate a monopolist or near-
monopolist.
    Finally, regulation might cap the prices of satellite 
radio, but it doesn't protect other forms of competition. It 
will not protect the competition that would lead the two of 
them to compete to lower equipment prices. It doesn't protect 
the competition that would lead to them providing greater 
product variety and greater choice. So, I think regulatory 
relief is inadequate.
    As to the relevant market, if I'm in a small town in 
Wisconsin or Utah, my terrestrial radio options are 
extraordinarily limited and none of the rest of these 
alternatives, none of them, can provide the same cluster of 
services that satellite radio provides.
    Just as the court found when it looked at the Staples/
Office Depot merger, satellite radio offers a distinctly 
different service. No other office supply distribution was 
comparable to going and shopping at a Staples or an Office 
Depot, even though you could get the same things elsewhere.
    Chairman Kohl. Thank you.
    Mr. Hatch?
    Senator Hatch. I was a little upset at your bringing Utah 
into it, is all I can say.
    [Laughter.]
    Mr. Karmazin, most of our concern is about the content of 
your programming and what the content will look like if the 
merger is finalized. Specifically, I understand that both XM 
and Sirius have faith-based music channels. Now, is it 
reasonable to believe that the number of these channels will be 
reduced in size if this merger goes through, or at least cut in 
half?
    Mr. Karmazin. No. I don't think it's reasonable to assume 
that at all, mainly because of the popularity of the Christian 
channels that we are currently broadcasting. So, they are some 
of our popular channels and you should not automatically assume 
that there will be a reduction.
    Senator Hatch. OK. As you know, I have dedicated a 
considerable portion of my service here in the Senate to 
protecting children. I was one of the principal authors of the 
Adam Walsh Act, just as an illustration, and the author of the 
SCHIP bill, et cetera.
    Now, what actions are you taking now, and what actions will 
you take in the future if this merger is finalized, to protect 
children from listening to some of what I would term more 
aberrant programming that may be currently offered by Sirius?
    Mr. Karmazin. Yes. We believe that parents, obviously, 
should be able to control the content that is coming into the 
car or into their home. We currently are able to, unlike my 
days in terrestrial radio where there was no way of restricting 
what comes into the home in over-the-air radio, we have the 
ability to black out channels.
    Either the consumer can do it on their own device or, in 
fact, we can do it from the head end to make sure that any 
channel that somebody doesn't want is not there. We also, 
earlier this afternoon, put in a filing with the FCC of our 
license and included in the license what we have said in our 
application, is that anybody who chooses not to receive any 
content, any adult content, not only has the ability to block 
it, but there would be a cost reduction to their bill in a more 
a la carte way.
    So that the argument is that if somebody doesn't want it, 
it's not only that they're not getting it, but they're also not 
subsidizing it somewhere else. So we do believe that we are 
entitled to have content that adults want to hear. We are 
restricting it. It is a pay service. We're making sure that 
that the parents have all the information on that content and 
they can restrict it and not pay for that service.
    Senator Hatch. Well, thank you. Now, your underlying 
contention in promoting this merger is that the satellite's 
true competitors are other radio platforms, including music 
played over cable and the Internet. True competition, however, 
is premised on equal footing.
    Do you agree then that satellite services should be 
required to protect content in the same way that cable and 
Internet services are required, under Section 114 of the 
Copyright Act?
    Mr. Karmazin. Yes.
    Senator Hatch. Ms. Quass, when reviewing a merger and 
defining a relevant market, the Department of Justice and the 
FTC are supposed to look for the ``smallest collection of 
products in geographic areas within which a hypothetical 
monopolist would raise price significantly.''
    Now, some such as Mr. Balto would argue, with some merit, 
that satellite radio is a separate market, independent of 
terrestrial radio, therefore, the merger should be evaluated in 
narrow terms. That would be the argument.
    If so, why does the National Association of Broadcasters 
take such a particular interest in this merger? Aren't you very 
concerned that satellite directly competes with terrestrial 
radio?
    If that's true, why then should the Department of Justice 
and the FTC not look at this transaction in terms of a market 
that includes satellite and terrestrial radio?
    After Ms. Quass answers, I would very much like to hear Mr. 
Balto's thoughts as well.
    Ms. Quass. Thank you, Senator. Let me see if I can answer 
that question in terms of the market. The satellite radio 
market is really XM and Sirius. They compete on a national 
platform and are a bundle of national mobile digital audio 
channels that, in and of themselves, are the only two that can 
provide that function.
    XM and Sirius compete with local broadcasters in the 
markets that we serve. As was mentioned, it's all about share 
of audience. As was also mentioned, it's not a level playing 
field.
    While we don't disagree that a competitive field is what we 
operate in and what we welcome, and the challenges that it 
brings, an unfair playing field severely hampers our ability to 
perform the services that we provide on a daily basis.
    There are a number of reasons that XM-Sirius and the 
proposed monopoly are of concern to local broadcasters. One is, 
as I mentioned, an unlevel playing field. We cannot provide the 
same type of services. We cannot bundle services to provide 200 
and 300 channels; we can barely do 6 or 8.
    We do not have two revenue sources with which to be able to 
operate from an advertising, and also subscription, model. We, 
unfortunately -or fortunately, depending on how you look at 
it--operate within constraints of coverage areas that are 
granted to us by our license, where we protect not only fellow 
broadcasters who have signals that we try not to interfere 
with, we also have public service obligations that, I might 
add, broadcasters take very seriously.
    We feel it's very important to live and to work in the 
communities that we serve and to become an integral part of it. 
But the pressures that we face to compete cannot be matched 
with XM and Sirius and their ability to be able to provide 
national mobile bundling of services.
    You know, in a competitive field, if you look at our 
competitive environment in a Warsaw or Salina, you name the 
community, what we have the ability to cover in our area to 
cover is limited, where XM and Sirius together, if they were 
the U.S., we would be a cornfield. So it's sort of an unfair 
playing field which we have to deal with.
    And another concern is the ability to be able to control, 
potentially, lock-up programming that we would not have the 
ability to be able to provide as a result of this monopoly.
    Mr. Balto. First let me explain the point about the 
smallest collection of products. The reason why the antitrust 
laws define markets in terms of the smallest collection of 
products, is because the law says that it protects competition 
in any line of commerce, any group of consumers is protected.
    So even if we're talking about only 14 million people who 
vote with their pocketbooks every month and pay $13 a month, 
that's still a group of people who deserve the protection of 
the antitrust laws.
    Second, why are the interests of the NAB coincident with 
the interests of consumers, and I think they are? The reason is 
the programming point that Ms. Quass just made. A monopolist in 
satellite radio can get exclusive programming and harm 
traditional radio and consumers.
    One of the big controversies in cable TV and satellite TV 
is exclusive rights to programming. Your colleague, Senator 
Specter, 
has raised serious concerns on the issue involving NFL Sunday 
Ticket.
    Now, exclusive programming is not at issue right now with 
satellite radio, but who knows? Maybe a few years down the 
line, maybe when they become a monopolist, then all of a sudden 
the only way we may be able to have access to Washington 
Redskins broadcasts are by subscribing to satellite radio.
    Let me make one more point about the faith-based radio that 
you started with, Senator Hatch. If I wanted to come up with a 
Jewish radio station and broadcast it nationally, I have two 
alternatives who I can currently play off against each other, 
XM and Sirius. And, like in any competitive market, that will 
give me some kind of advantage--a greater ability to secure an 
outlet and get a fair price.
    But if they become a monopolist, there will be only one 
person who is going to determine what gets on satellite radio. 
If you want to have a regulator, that's fine. To protect 
content diversity you'll have an FCC religious regulatory 
regulator determining what the religious content of satellite 
radio is. I don't think that's something anyone could stomach.
    Senator Hatch. Ms. Quass, let me just say, in your written 
testimony you state that ``XM and Sirius will be able to 
exercise virtually unlimited market power in the national radio 
market, to the detriment of consumers.''
    But is that really the market that we should be primarily 
concerned about? For instance, is not the real profit market 
found with those customers in such traditional market segments 
as the so-called ``morning drive''? And are these not the 
customers that you're truly concerned about?
    Ms. Quass. Well, Senator, certainly I'm concerned abut the 
customers that listen to our radio stations in a morning drive 
situation. But we really need to make the determination here 
between one entity that would have the ability to control 
programming on a national level.
    I have the ability to control--even if you aggregate all of 
the radio stations across the U.S., we all individually only 
have the ability to control the area which our coverage area 
allows us. We are not able to act as one unified body across 
the United States unless the rules change and, all of a sudden, 
we have one entity that all 14,000 radio stations--which I 
doubt seriously is a possibility.
    So the concerns that broadcasters have is, our business is 
content-driven. Granted, it's local content. It's a very big 
part of what it is that we do. We serve, on a day-in and day-
out basis, those people in our local communities, giving them 
the kinds of service that we take seriously. We're constantly 
trying to improve programming so that we continue to have an 
audience that listens to us.
    But there is nothing that we can ever do that will be able 
to aggregate the kind of audience and have the kind of control 
that one organization will, to be able to lock up content and 
programming and take it away from local broadcasters, to many 
of us, which is exactly what we try and do on a daily basis, to 
bring to our local communities.
    Senator Hatch. My time is up, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Hatch.
    Senator Brownback?
    Senator Brownback. Thank you, Chairman. I appreciate it. I 
thank the panel for being here.
    I'm going to ask a couple of questions along the line of 
content and the content monopoly area, that I want to tie these 
in together.
    Mr. Karmazin, thank you for being here and thank you for 
stopping by my office this morning. We've crossed swords in the 
past on content issues. I hope to be very respectful of your 
business model, but I think I have got some comprehension and 
understanding of it a bit, too.
    It seems as if a fair portion of your business model is 
based upon featuring explicit sexual material. I'm sure you 
might categorize it as somewhat differently, but I think there 
are others also that would categorize it as pornographic.
    I want to talk with you about that, because you can do 
that, where Ms. Quass's stations cannot. She is regulated in 
that field on content for the public good. We've had a big 
tussle about that here. We've even increased the fines now 
tenfold for her set of stations that she has, radio and 
television, on content and material that would be considered 
overly sexual, overly violent.
    There have been discussions about how you define that, a 
lot of discussion, a lot of difficulty. But, still, you are not 
subject to that set of regulations, and are obviously not 
willing to be subject to that set of regulations, and that's 
part of your business model.
    Is that a part of your business model you're going to 
continue even as a merged set of companies?
    Mr. Karmazin. Yes. We provide content for a broad spectrum 
of the American public, including some adult programming. I 
mentioned what we do in allowing people to not have that 
content that they may not want to come into their home.
    But, yes, we believe that not all content that's available 
needs to be only content that's acceptable to children. I don't 
believe that was ever the intent of anyone who made the rules. 
And I also understand, it's been a while.
    I was in the terrestrial radio business for about 40 years 
and I'm not following latest developments, but I also 
understand that the local broadcaster has a safe harbor as it 
applies to that, not that they necessarily want to use it, but 
the fact is that there is a safe harbor for them to be able to 
do adult content as well.
    Senator Brownback. And would you be willing to submit 
yourself to the same regulations as the terrestrial 
broadcasters would on content and safe harbor?
    Mr. Karmazin. No, I would not.
    Senator Brownback. All right.
    Mr. Chairman, I'd like to enter into the record, if I 
could, the web pages for Sirius Satellite Radio. These are 
three pages I'd like to ask unanimous consent to enter into the 
record.
    Chairman Kohl. Without objection.
    Senator Brownback. And this is Playboy Radio. Question & 
Answer, I believe, is one of your channels. Night Calls is one 
of your programs I believe you listed here as one of your 
signature shows: ``Two legends of the adult industry, special 
celebrity guests will keep the dialog entertaining, the 
temperature rising,'' is how you describe it here in your 
materials.''
    Private Calls is a daily show: ``Sharing most intimate 
moments with special guest hosts and porn stars. We'll give you 
a peek into their lives,'' is the way you describe it on your 
web sites.
    Sexy Stories is a daily show that you have: ``Finest 
providers of sensual audio in the entire world, presenting 60 
sizzling minutes,'' I believe, is how you describe it in your 
own material.
    Ms. Quass, are these shows that you can do in over-the-air 
radio broadcasting?
    Ms. Quass. No, they are not. And I might also just add 
that, while I appreciate the concern for being able to opt in 
and out of programming by the subscriber, we're also concerned 
about the ability for some of the technology that is used to 
carry satellite programming and the ability to bleed through 
into terrestrial or over-the-air radio without concern for 
whether or not that individual opted in or out, as a way to be 
able to also further enhance the concerns that we have.
    Senator Brownback. Mr. Karmazin, I mentioned to you in the 
meeting we had this morning about the issue of the spread of 
pornography in the culture and in society. I mentioned a book 
to you, Pornified. Actually, we held a hearing in this 
Committee on the spread of pornography.
    I mentioned to you as well about, I think you said, well, 
OK, we want to maintain material for adults and we're not going 
to let children get into this material. I mentioned to you 
about, this does impact children.
    In a recent meeting of the American Academy of Matrimonial 
Lawyers, two-thirds of the divorce lawyers who attended said 
that excessive interest in pornography played a significant 
role in divorces in the past year.
    Pornography, by itself, has begun to arise with alarming 
frequency in divorce and custody proceedings, according to 
divorce experts. This is a relatively recent phenomena. One 
expert stated that pornography had an almost non-existent role 
in divorce just seven or 8 years ago.
    I mention those two you because I don't know--and maybe you 
do believe this--that this is done in a vacuum or that this can 
be controlled in just an adult atmosphere, so therefore it has 
no impact on children or the broader society. I think the body 
of evidence is building that it isn't done in a vacuum and that 
it does have an impact on a broader society.
    As I mentioned to you this morning, I'll be sending you 
this book and I'd appreciate it if you have a chance to review 
it.
    Mr. Balto, I wanted to ask you, on this point, if we grant 
this monopoly and this monopoly has this ability to market a 
particular type of material, is that something we're going to 
see evolve over time?
    You seem to think that we're not very good about regulating 
monopolies. Is this going to be something that will be used in 
marketing by a monopoly over a period of time or have you had a 
chance to have a thought about this?
    Mr. Balto. Thank you for the question. I think, again, you 
can regulate in this area. You have chosen not to regulate 
satellite radio in this area and that's something you can 
address.
    However, what you have right now is competition between two 
satellite radio services and this has an impact on content. If 
you look at the web site of XM, they specifically identify the 
sort of X-rated radio programming and instruct how to install 
parental controls. Sirius does not provide this information.
    That occurs because there's always a need for XM and Sirius 
to differentiate their products. And who knows? Maybe one day 
it leads to one of them saying, we're not going to have adult 
content on our satellite radio, we're going to differentiate 
ourselves.
    If you accept the offer that these firms propose, you won't 
have that competition, perhaps leading to the kinds of 
programming choices to keep this kind of content off the radio.
    Senator Brownback. Mr. Karmazin, would you agree right now 
to not put pornographic material on the combined stations?
    Mr. Karmazin. Senator, I really don't know what you would 
categorize as pornographic material. So, you know, much like I 
said to you, I'd be welcome to buy the book, but I'll take you 
up on your offer to send it to me free, I'd be interested in 
knowing if satellite radio is covered in that book as being one 
of the issues that lead to pornography.
    I think one of the issues is that we are a believer in the 
First Amendment. I've been a broadcaster for a long time. I 
stand strong in that regard and I believe that, in the area of 
indecency, that there is the ability to disagree over what 
might be considered indecent. We certainly are not interested 
in airing, you know, any obscenity. I just don't know, sir, 
what you would call pornographic, or what somebody else would 
call pornographic.
    Senator Brownback. So you're not willing to say, now, by 
any definition, that you will not limit your material on 
pornography.
    Mr. Karmazin. Senator, it's an easy ``yes'' for me to give, 
but I'm not sure that I can truly live up to it because I'm not 
sure that I understand what the standard would be, and I don't 
want to just give you lip service. So the answer is that, no, 
I'm not able to give you that commitment.
    Senator Brownback. Well, I thank you for your candor on 
this. We've had discussions before. We've got a big problem in 
the country on this. I know, perhaps, you don't see it as much. 
But the National Council on Sexual Addiction and Compulsivity 
estimates 6 to 8 percent of Americans are sex addicts, and that 
almost all of them begin with pornography.
    Other studies estimate that at least 10 percent of the 
entire population is dealing with sexual addictions. Forty 
percent of sex addicts will leave or lose their spouses; 58 
percent of sex addicts will have severe financial difficulties; 
40 percent of sex addicts are professionals who will lose their 
profession; 27 percent of sex addicts will lose their jobs or 
be demoted. I realize that's not your issue or your problem, 
but it is mine, and I think it is the country's problem.
    We need to have respect for the First Amendment, but we 
also have to have respect for what's taking place here. You've 
got a particular business model taking advantage of an area 
that Ms. Quass's group cannot, thankfully, take advantage of.
    So to put that now in monopolist hands does seem to raise a 
significant question in a big area, and an area you're not 
willing to say, honestly, that you're willing to limit yourself 
to. So, I respect that, but I do have problems with it, Mr. 
Chairman.
    Chairman Kohl. Thank you, Senator Brownback. Just to get 
back this whole discussion of what we're talking about here 
today, which is what all of us are doing, of course, you know, 
I have to lay it out to you, Mr. Karmazin, and to the panel 
members, repeating much of what you said and trying to see it 
in the context of the totality of what we're discussing here.
    I think what you're asking for, and you have every right to 
ask, is a unique monopoly, an ability to perfect a business 
model in terms of radio, or communication over the air, radio 
satellite, to present a product to the American people that is 
unrivaled, unequaled, and really not to be competed with just 
by the very definition of what it is that you are presently 
offering and want to, by combining with the other entity--it is 
so unique, that I think in 10, 20, 30 years, it will be a 
business colossus in this country that would be almost 
unrivaled.
    It is not entirely different from having over-the-air 
television and one cable operator in the United States. I mean, 
we cannot imagine that being done in this country because the 
power and the profitability of that cable operator to attract 
all the most attractive events by being able to offer much more 
than over-the-air, like NFL, or the basketball, or the 
baseball, or whatever, they would be so profitable, so 
powerful, so dominant, with no competition, that over a period 
of time it would be a behemoth that probably the government 
would have to step in and reverse whatever decisions it had 
made not to allow it to go any further.
    To some extent, on a somewhat smaller scale, because radio 
is not television in this country today, but radio is huge. If 
you are given the power to have the only state-of-the-art, 
perfect radio presentation in terms of what you can offer that 
nobody else can offer, wow, what an opportunity over a period 
of time. You say, well, we only have, what did you say, 13 
million subscribers. Fine.
    But if you were able to get the NFL for a zillion dollars, 
your subscriber level would go up to 100 million right away, 
150 million, 200 million, and you would do this because it 
makes good business sense to do it. That's the only reason you 
would do it.
    So your ability to raise your subscriber level is only 
circumscribed by the kinds of agreements that you could, and 
would, make with the presenters of the most desirable kind of 
programming in this country. That's what goes on on television.
    That's why, you know, more and more sports television 
events are going to cable. More and more businesses, various 
business entities in the NBA, major league baseball, and the 
NFL are moving toward cable, because that's where the real 
revenues are, and cable understands that and they're snapping 
them up, one after another.
    The same thing will happen on radio, Mr. Karmazin, if you 
are put in a position to be able to do it, and you have every 
right to ask if there is nothing immoral, unethical, or even 
begin to say illegal at this time. But it's another thing for 
us to grant you that permission, to be virtually unrivaled, 
unchallenged in this whole area.
    Now, just to finish up the question so you can answer. As I 
understand it, most all of radio is listened to in the 
automobile--not all of it, but the largest chunk. So what you 
are doing, and what you will continue to do, and you should, go 
to all the automobile companies and get them to produce 
automobiles that automatically have the technology to 
incorporate satellite radio so that people who buy a car just 
have to say, OK, start charging me $12.95 or whatever you're 
charging, and I can have your satellite radio. They will do 
that just because people trade up. That's America. We want 
more, we want better.
    As long as the price is somehow within what we can afford, 
which you will calibrate over the years, you will get everybody 
who's interested in radio, just like more and more people are 
on cable nowadays.
    Over a period of decades, more and more and more people 
will gravitate to your business, and you have no competition. 
You have no competition. What a business! I might quit this job 
to go into your business.
    Mr. Karmazin. Senator, with all due respect, where do I 
start? You're dealing with the fact that we are a monopoly. I 
assume you're automatically assuming that the Internet does not 
exist and that there are no audio services on the Internet.
    I'm assuming, sir, that you're assuming that when all of 
the car companies are providing a jack for somebody to plug 
their I-Pod into and the I-Pod has all of the content that's 
available, including talk programming and sports programming 
because it's available on the I-Pod, and I'm assuming, sir, 
that in the telephone, where the largest telephone companies 
are providing all kinds of content, not just music content, but 
sports content, and in your vehicle you take your cell phone 
and you put it into your dock and you have blue tooth 
technology and the content that's in your cell phone comes 
right through the speakers on your radio, it is bizarre that 
the thought is that there isn't all of this competition. There 
is all of this competition.
    We're not talking about being a monopoly. I know the NAB 
has used those words about monopoly in this context. If it was 
a monopoly we wouldn't have wasted our time in trying to get 
this merger approved. We understand people don't like 
monopolies. What we're saying is, there is all of this 
competition. And by the way, Mr. Chairman, we do have the NFL, 
and we've had the NFL for three reasons. We have the 6 million 
subscribers in spite of having every single NFL game that's 
broadcast.
    The content that's available on satellite radio, that same 
content is available on the Internet and it's also available on 
cell phones, and it's also available. The fact that there is 
this HD radio, and by the way, there is no reason that HD radio 
is not ultimately going to evolve into a subscription service. 
They may choose, in the early days, to not have that have a 
second stream of revenue.
    The last point that I think is worthy of mentioning, sir, 
is the fact that our total advertising--now, we have been in 
business now for well over 5 years. Our total advertising, of 
the combined company, is under $70 million. Under $70 million 
of $21 billion. To think that we're dealing with a monopoly is 
just not reflective of the marketplace.
    Chairman Kohl. Well, just a couple of points. I-Pod, which 
you mentioned as your competitor--and of course, in a 
theoretical way it is--I-Pod has virtually no live broadcasts. 
So you cannot say, well, if you want to listen to the baseball 
game you can get it on satellite TV and you can get it on I-
Pod. Well, that's not true.
    Mr. Karmazin. If you want to listen to music, you can 
certainly get it on I-Pod. If you want to listen to--
    Chairman Kohl. But is it true about sports?
    Mr. Karmazin. But sports is available on a cell phone, sir.
    Chairman Kohl. OK. But you mentioned I-Pod.
    Mr. Karmazin. And I mentioned cell phones.
    Chairman Kohl. Yes, you did. But--
    Mr. Karmazin. So in the case of sports today, I don't know 
if there's anything in the technology that precludes the 
content owners of sports content from doing a transaction.
    Chairman Kohl. But today, I-Pod does not carry live sports.
    Mr. Karmazin. Not to my knowledge, sir. I agree with you.
    Chairman Kohl. And I just want to mention your web site. 
The Sirius Internet web site has a section on the merger in 
question and answer format. One question that is posed is, 
``Should I wait until after the merger `to get Sirius'?'' And 
your answer is, ``Are you kidding? Well, if you like 
commercials and you like listening to the same CDs for a week, 
and you like fiddling with your MP3 player while driving.'' It 
says, ``No, you'd be crazy to wait.''
    Well, Mr. Karmazin, isn't this an explicit statement that 
you promote satellite radio as a very different--very 
different--and a very superior service that is not to be 
equated with all these other things that you're mentioning? 
That is your business model. That is what you are trying to 
create. Once we give you monopoly, my man, over a period of 
years, because you're smart, you know how to do it, you will do 
it.
    Mr. Karmazin. But Senator, you just made my argument.
    Chairman Kohl. How did I make your argument?
    Mr. Karmazin. Because you just read all of the factors that 
we're talking about as to how we compete with terrestrial 
radio. We didn't sit there and say that you shouldn't do it 
because we're competing with XM. All of those points that you 
just raised demonstrate the fact that we compete with 
terrestrial radio.
    Chairman Kohl. You have developed, and will develop much 
further, because you have the capacity in this technology that 
you own, to develop a business model which cannot be rivaled by 
any kind of a radio station in any market.
    Mr. Karmazin. Sir, it--
    Chairman Kohl. We know that. I mean, that's clear. If I 
want to hear any one of the football games on Sunday, or the 
basketball games every night, or the baseball games every 
night, if I want to hear any of them at will, the only place I 
can go, or will be able to go, is to your technology.
    Mr. Karmazin. No, because you can get those same baseball 
games on the Internet because they're available. The NFL, the 
NBA, and the major league baseball all offer services where 
they have all of their games on the Internet. We have a deal 
with NASCAR to where we provide NASCAR on satellite radio. 
NASCAR is also available.
    Chairman Kohl. But isn't it true that they will not be able 
to get it on the radio? They will be sidelined by your 
technology.
    Mr. Karmazin. No.
    Chairman Kohl. The radio will be sidelined by your 
technology.
    Mr. Karmazin. Terrestrial radio will still get their local 
games if they want to.
    Chairman Kohl. Local games, yes. But--
    Mr. Karmazin. Excuse me. There's Clear Channel and a lot of 
the broadcasters who operate nationally. This goes back a 
while, but the Dallas Cowboys--
    Chairman Kohl. I want to ask you a question. Can you listen 
to Internet in your car as you drive?
    Mr. Karmazin. Yes. Wi-Fi if going to enable you to be able 
to listen to it while you drive.
    Chairman Kohl. That's not entirely true.
    Mr. Balto?
    Mr. Balto. I have four simple points. First, in terms of 
alternatives, remember the relevant market is the cluster of 
services offered by satellite radio. None of the rest of these 
things offer the cluster of services. None of them are in the 
relevant market.
    As to I-Pods, read page 6 of my testimony and you'll see, 
it's a cumbersome and uninteresting process to compete on your 
own by loading your own music, and then you miss the great DJs 
of Sirius radio.
    The second point. Are these things viable alternatives, Wi-
Fi, HD radio? Remember that the merging monopoly has 
relationships, ownership interests with some of the major car 
manufacturers. Are they going to put HD radio in my car? Are 
they going to put Wi-Fi in my car? I don't think so.
    Third, technological change. What the merging parties are 
saying is, sometime in the future there's going to be a 
sufficient technological change so we can't exercise market 
power. If the deal makes sense for the merging monopoly today, 
it makes sense at that point in time. Let them do the deal 
then. Then we'll know consumers won't be harmed.
    Finally, let me make two quick points about efficiencies. 
First, they are saying there are efficiencies in terms of 
people being able to share content. They share content today, 
they can share content in any fashion that they choose to right 
now.
    Second, what Mr. Karmazin said was, ``We are prepared to 
pass on some synergies in the form of lower prices.'' Focus on 
those words: ``we are prepared to pass on some synergies.'' In 
a competitive market, they don't have a choice. In a 
competitive market, they have to pass on those synergies.
    Competition is what drives XM and Sirius to offer better 
products and lower prices. If I'm a Sirius engineer and I 
invent the better mousetrap, the better radio tomorrow, they 
will introduce that product out on the market as quickly as 
possible. But if XM and Sirius is a monopoly, they can sit and 
figure out when it is they'd like to bring the product out to 
market.
    Chairman Kohl. Senator Hatch?
    Senator Hatch. Well, Mr. Karmazin, there are a few things I 
just don't know about this, and maybe I can ask what may be 
very stupid questions.
    But as I understand it, the SEC has granted two licenses, 
one to Sirius and one to XM. Is that correct?
    Mr. Karmazin. Yes, sir.
    Senator Hatch. If you merge, will there still be an extra 
license available?
    Mr. Karmazin. No, sir. But there's plenty of spectrum 
available. If the question is whether or not--
    Senator Hatch. I guess my point is this. Let's assume that 
you merge and that you really become much more successful so 
that you quit losing the billions of dollars that have been 
spent. What keeps another satellite company from coming in and 
competing?
    Mr. Karmazin. Well, I think the idea is that there is 
plenty of spectrum. There are plenty of competitors out there 
who have expressed an interest in doing the kind of content 
that satellite radio is doing.
    Senator Hatch. You're saying that there's nothing that says 
others can't come in and compete with you.
    Mr. Karmazin. That's correct. I'm saying that there's 
nothing that stops somebody from using the WCF spectrum or 
using any of the spectrum that the--
    Senator Hatch. I presume that if this merger takes place 
and you become much more successful, let's say you get an 
audience of 50 million people combined, I assume that others 
would want to get into this business.
    Mr. Karmazin. Well, I mean, that's definitely a 
possibility. But I will tell you that if in fact we are 
successful, it is because we have been successful in convincing 
people to pay for radio. You know, the majority of the people 
are satisfied with free over-the-air radio.
    Senator Hatch. Well, I think the point I'm making is, 
you're not foreclosing the market from others coming in. You're 
just trying to make it a more efficient market so that both of 
you can survive, when you may not be able to survive if you 
don't combine.
    Mr. Karmazin. Yes. I would like to think that we're going 
to survive, so I don't want to give that impression.
    Senator Hatch. Yes. You would put it in different terms.
    Mr. Karmazin. Yes. But I do feel that the reason that we 
are not offering lower prices for the consumer is because of 
our cost structure today. And I'm not talking about the cost 
structure of the content, I'm talking about the cost of our 
billions of dollars of infrastructure on satellites and the 
like, that this merger gives us the opportunity--not standing 
alone, this merger gives us the opportunity to, in fact, find 
cost savings that will enable us to reduce the price and, 
therefore, maybe enable us to get as many subscribers as you 
say we might be able to get.
    Senator Hatch. Now, I share Senator Brownback's feelings 
about obscenity and pornography, but I also understand the 
problems that you have as people in the media. That is, unless 
the Supreme Court is going to define exactly what pornography 
and obscenity is, it's pretty tough for you to have to make 
that definition for them.
    There is a right of free speech, even though I'd prefer not 
having those programs for our families. But I suspect that 
that's more of an analysis than has been given thus far. That 
is, it's pretty tough to define just what pornography and 
obscenity really is under current Supreme Court decisionmaking.
    Mr. Karmazin. Senator Hatch, I was a broadcaster back in 
the old days when we had the seven dirty words, and it was very 
clear that when you had the seven dirty words, no license that 
I was involved with ever used the seven dirty words.
    Senator Hatch. If you had a definition here, you would 
abide by the definition, wouldn't you?
    Mr. Karmazin. Exactly. When I was a broadcaster, subject to 
the indecency rules, all I said was, tell me what the speed 
limit is and I'll go by that speed limit. Tell me that it's 55 
miles an hour and I'll follow it.
    And I'm sort of troubled by the fact that the NAB, which 
used to be more interested in protecting those free rights, 
have gone the other way in saying that, instead of sitting 
there and saying, let's clarify the rules, they're saying, 
well, just make sure, as vague as they are, just subject 
satellite radio to them as compared to getting the Supreme 
Court, maybe, to make those rules clearer.
    Senator Hatch. I see.
    Mr. Balto, I was very impressed with your written 
testimony. Clearly, there is a strong argument that the 
regulatory agencies should view this transaction narrowly. But 
aren't we living in a new world and a far more dynamic economy?
    Should we not look at the regulatory approval of Whirlpool/
Maytag mergers as our guide to the future? Specifically, under 
a traditional analysis, the Department of Justice would have 
placed great reliance on the market share that the resulting 
appliance manufacturer would have enjoyed.
    However, these are different times when globalization and 
the speed of commerce are rapidly changing markets. Therefore, 
the Department worked with the parties to the merger and 
developed a detailed market analysis. That analysis showed that 
the merger would not have an ill effect on competition since 
oversees competitors were quickly expanding their market share.
    It also showed that appliance retailers could, and do, 
quickly change the appliance brands that they choose to carry 
in their stores, only further underlying the premise that a 
traditional market analysis might not be as effective in this 
situation.
    Now, is this not similar to the XM and Sirius proposed 
merger in the sense that, though the guidelines support your 
argument that the market should be viewed narrowly, we are 
looking at a new market where satellite radio competes directly 
with terrestrial radio?
    Mr. Balto. I think that's a very good question.
    Senator Hatch. It's a little long question.
    Mr. Balto. No. I appreciate the question. It's something 
that the antitrust enforcers and the antitrust courts always 
consider, the degree that the market is dynamic.
    First, should there be foreign entry into satellite radio 
into the United States, that would be just terrific. I don't 
think that we're about to see French satellite radio enter into 
the United States.
    But, more importantly, if you refer to my testimony, all of 
the technological changes that the parties are proposing are 
several years off in the future. I think it's important to see 
this as being a truly dynamic market, but I think that 
dynamism--Senator Hatch, I should caution us to weigh even more 
heavily on enforcement.
    In the Office Depot/Staples merger, the parties said, look, 
there's all these new entrants who are about to come in and 
enter and transform our market. And you know what's happened 10 
years later? None of those people entered, absolutely none.
    But what's happened is, the number of superstores have 
increased from 1,000 to 3,000. If the court had allowed Office 
Depot and Staples to enter into a truce and create an office 
supply duopoly, then there would not have been anywhere near 
that level of increase in the number of stores.
    I think that you should credit the success of these two 
companies and the new products they've invented. You should 
credit how aggressively they compete with each other. That 
competition has brought benefits to millions of consumers and, 
because of that, they should not be allowed to merge.
    Senator Hatch. Ms. Sohn, I feel like we've been ignoring 
you. I don't want to leave you out of this. But as you know, 
customers are one of the critical sources that the Federal 
agencies use for defining a market. Now obviously they're the 
ones that know how and why they choose the products that they 
do.
    Now, how do you believe that consumers will react to a 
change in the marketplace if this merger is ratified?
    Ms. Sohn. Well, I just want to make it clear that Public 
Knowledge doesn't take a firm position on the antitrust issue. 
I mean, we really think there's a lot of information, private 
information, that we don't have access to that will really 
determine whether or not the other competition in the market--
and while it may not be identical it's still competition--would 
really tamp down satellite radio prices.
    Here's my concern. My concern really is with the hegemony 
of the broadcast industry. I remember, in 1992 when the FCC was 
starting to consider giving out, actually, at the time, four 
satellite radio slots.
    The NAB approached my colleagues and me at the Media Access 
Project and talked about all the ways they'd like to regulate 
the satellite radio industry. So, you know, for the past 15 
years the broadcast industry has been trying to limit what 
satellite radio can do, basically trying to put it out of 
existence. That really is my concern here.
    We talked a little bit about the Direct TV-Echo Star merger 
which was disallowed. Sometimes I wonder, we didn't take a 
position on that then, but that merger was disallowed. Cable 
prices have still gone up. As a result, the DBS industry was 
not able to compete against companies like Verizon and others 
in the recent AWS spectrum auction.
    My concern is whether, if you do not allow this merger, 
whether you're going to have two weak companies that cannot 
compete against a 70-, 80-year-old broadcast industry that has 
done everything in its power over the last 15 years to try to 
hobble or regulate the satellite radio industry.
    Senator Hatch. I noticed in your written testimony that you 
state, ``If the merger is ratified it should include provisions 
creating pricing choices, such as tiered programming.'' Now, 
does not this open the door to greater price increases? For 
example, would not the merged company charge extra for its NFL 
package?
    Ms. Sohn. Well, that's why, also, one of the other 
conditions is a price freeze on the combined programming 
package for 3 years. Now, there was some question about whether 
the price freeze that Mr. Karmazin promised at the House 
Antitrust Task Force Committee hearing that I testified at as 
well would have just applied to the current package or the 
combined package, and we are now calling for a price freeze for 
3 years for the combined package.
    Senator Hatch. Mr. Chairman, if I could just make one 
comment. I know my time is up. This is an extremely interesting 
situation. You know, all of us here would like to please 
everybody. I, for one, believe that there ought to be 
competition.
    On the other hand, you know, this question of obscenity and 
pornography, you know, I'm totally opposed to it. I think we 
have too much of that on our current air waves, and also on our 
current television sets.
    But my point is, unless we have the guts to define it, and 
the Supreme Court has the ability to uphold the refinements 
that we make, it's pretty hard to say that--you know, that you 
can't put on what really is a free speech situation.
    But, you know, I don't think it has much to do with this 
merger, but I would encourage Mr. Karmazin and others to kind 
of look at the interests of mankind as you go through this. 
You've indicated you certainly will; you're not going to do 
something that is outside of the law.
    The question is, can you do some things that are inside the 
law that would be helpful to mankind? I would encourage you to 
do that. As far as I'm concerned, that's about all you can say 
about that issue, although there may be more.
    But this is extremely interesting to me because I can see 
some ways where competition can exist. I can see a number of 
ways where people, Ms. Quass, are very concerned. But it's a 
long way to have this approved, anyway, and we'll just have to 
see what happens.
    But I have a difficult time--and maybe, Mr. Balto, you 
might want to answer this--understanding why, if they are 
successful after this merger, there would not be plenty of 
competition that would arise, and plenty of desire on the part 
of Congress to make sure that competition flourishes.
    That may be a question that should be asked only after we 
see what happens, but that's my own personal--I just cannot see 
why there wouldn't be a lot of competition here.
    Now, I also have a difficult time seeing why terrestrial 
radio can't compete, or why it's not a competitor, even though 
it may be at a disadvantage, if people can afford to pay the 13 
bucks a month, or whatever it is that you pay for satellite. 
This is an extremely interesting case. I think this has been an 
extremely good panel, so I want to compliment each of you for 
your comments here today.
    Chairman Kohl. I want to get back to Senator Hatch's point, 
because it's central to this hearing and to this whole subject, 
the business of competitiveness.
    Mr. Karmazin, of course, is an ``expert'' and he 
understands his business. So, I'm going to ask a question by 
making a statement. It's my understanding that the very high 
cost of launching a satellite, literally billions of dollars, 
would make it virtually impossible for another satellite radio 
company to enter the market.
    Now, do you really believe entry by another satellite 
company is likely after this merger? And you people have 
thought about it. I'm sure you have a clear answer to that 
question.
    Mr. Karmazin. I do have a clear answer to that question. 
You're asking whether I think there will be another satellite 
competitor, the answer will be, probably not.
    But I do believe that there is other technology and there 
are other frequencies. I don't know what the magic is, whether 
you're getting the content from a satellite or you're getting 
the content from another kind of technology, but there is 
currently plenty and there will be even more competition in the 
future, probably not from another satellite company.
    Chairman Kohl. That's a very important answer. I mean, 
that's a clear--I appreciate your being very clear in your 
response.
    Senator Hatch. May I interrupt on that, Mr. Chairman?
    Chairman Kohl. Go ahead, Senator Hatch.
    Senator Hatch. Would it be similar competition? That's the 
point.
    Mr. Karmazin. Yes.
    Senator Hatch. In other words, whether it comes from 
satellite or not is not the issue. It's, would it be similar 
competition?
    Mr. Karmazin. And that's what we have said, is that we 
believe that how you get the signal into the car, whether or 
not it would go by Wi-Fi or whether, it go by cell phone, or 
whether it go by terrestrial radio, or whether it goes by 
satellite--
    Senator Hatch. Or some new technology.
    Mr. Karmazin.--or some new technology, we think that's the 
relevant issue, not whether or not somebody happens to use very 
expensive satellites as compared to using some more efficient 
technology to get into the car.
    Chairman Kohl. Yes. But what we are establishing here, at 
least in terms of opinion at this point, is that there is very 
little likelihood that there will be a satellite competitor to 
this merged company.
    You're saying there can be others and we can talk, but 
Senator Hatch's question needs to be answered, at least to my 
satisfaction, and in a fairly precise way, which you are in a 
position to do, and you are doing it, which I respect. You are 
saying that there is not a likelihood that there will be a 
satellite competitor to your merger.
    Mr. Karmazin. No.
    Chairman Kohl. If you thought, in a very easy manner, all 
kinds of different technologies are available, will be 
available to make your service not unique at all because it can 
be duplicated and received in so many different ways, I don't 
think you'd be here today asking for this exclusivity, Mr. 
Karmazin.
    Mr. Karmazin. Senator, I gave you a very candid, very 
honest answer, in my opinion. But, you know, this is America. 
If somebody wants to do it and they have the resources to do 
it, nothing would stop them from doing it.
    Chairman Kohl. From doing what?
    Mr. Karmazin. Launching another business competitive to 
satellite radio.
    Chairman Kohl. But you would not expect it to be a 
satellite business?
    Mr. Karmazin. I don't expect it. But you know what? I 
didn't expect that there was going to be audio channels coming 
from cell phones. I wasn't a visionary that invented the I-Pod. 
And by the way, I didn't invent satellite radio, you know.
    So it was that there are all kinds of very smart people 
with all kinds of access to capital, and there is no stopping 
their ingenuity as to what business they want to get into. But 
do I think that's likely? No, I don't believe that's likely. 
That's as candid as I can be.
    Chairman Kohl. I appreciate that. I do appreciate that.
    Senator Hatch. Well, 5 years ago we didn't know what Wi-Fi 
was, you know. Or maybe it's longer than that, but I think 
about the last 5 years.
    So you don't know what kind of technology is going to come. 
But on the other hand, you know, I can see the concerns of the 
others there as well. I personally don't believe that there 
will be a lack of competition if you're successful.
    Mr. Karmazin. Yes. I didn't believe there was going to be 
an HD radio. I mean, I didn't believe, you know, that there was 
going to be--
    Senator Hatch. I'm very interested that you were honest 
enough to say you didn't think anybody else would do satellite.
    Mr. Karmazin. Well, you know, I made a lot of money in it.
    Senator Hatch. I don't see how you know that. Because I 
know one thing, if you're really successful, there's going to 
be people with billions of dollars who are going to come in and 
compete with you, it's just that simple.
    Mr. Karmazin. I just think that there's a lot of other 
technology and there are a lot of ways of getting the signal 
into the places where the consumer wants the signal, that you 
might be able to do it more efficiently than the high-cost way 
that we chose to do it 10 years ago, which was to start getting 
into satellite radio.
    I mentioned earlier that the losses that the companies--
again, not crying poverty by any means--have sustained are, 
combined, about $7 billion before we've made a dime. So the 
likelihood of somebody going through those kinds of losses is, 
there's a more efficient way of doing it.
    You know, I would not be the person who would launch the 
three satellites, have a ground station on the spare, put an 
infrastructure in, when I have all kinds of other technologies 
that are enabling me to get into the car, which everyone has 
said is the place where you want to be.
    Senator Hatch. Well, to do exactly what you're doing now.
    Mr. Karmazin. Right.
    Senator Hatch. Except that it's not satellite.
    Mr. Karmazin. Correct.
    Senator Hatch. Yes. I see.
    Chairman Kohl. Mr. Balto, we often hear the argument that 
the merged company could not raise its price because it 
competes with free over-the-air, yet we have a similar example 
that appears to be contrary to this argument that cable 
television competes with free over-the-air all over America in 
every market.
    But every year, consumers in every market all over America 
see substantial price increases averaging sometimes triple the 
rate of inflation on their cable bill. Doesn't this teach us 
something that can be prophesied with respect to this merger 
versus over-the-air radio?
    Mr. Balto. I think that is absolutely correct. I am sure 
that the proponents of this merger will note that free TV is 
much smaller than free radio is, but I don't think, if you 
carefully look at what satellite radio does, you will conclude 
that it does compete directly and competes aggressively against 
terrestrial radio. So, I think you would have the same problem 
of likely price increases.
    Let me touch on the technological innovation point that was 
just made. Look, the courts, interpreting the Clayton Act, have 
made it clear that we don't sacrifice the interests of 
consumers on a bet that the market will change.
    To approve an otherwise anti-competitive merger, the 
merging parties must demonstrate that entry is timely, likely, 
and sufficient to prevent anti-competitive harm and it's a 2-
year period used. I don't think you can show that those 
alternatives will come to the market within two years.
    But in any case, if that's the key to their argument, if 
this deal makes sense now, it will make sense when those 
alternatives can constrains anti-competitor conduct.
    Chairman Kohl. Ms. Sohn?
    Ms. Sohn. I just have to disagree with Mr. Balto on the TV 
point, because a lot of the reason that people get cable TV in 
the first place--and frankly, the raison d'etre for cable 
starting--was for people to get their local over-the-air 
stations. OK. That's different than here. OK.
    People don't get XM radio because they want to get access 
to their local stations. They get it because they're tired of 
the play listing and the over-advertising on local stations. 
So, it really isn't comparable.
    The other point is, I do think Mr. Balto understates a 
little bit the vastness of technological change. I don't know 
if I ever agree with Senator Hatch on much of anything, but I 
think on this one I probably lean more toward his argument.
    In fact, I think it was last week a satellite radio--it 
doesn't do it exactly like XM and Sirius, but a service called 
Slacker that provides personalized channels, radio channels, 
using existing extra satellite capacity was just launched. They 
say that, by the end of the year, they're going to be able to 
have receivers in cars.
    Now, obviously this is something that the antitrust 
authorities are going to have to look at to see if, indeed, 
this would tamp down prices. But I do think that Mr. Balto 
understates a little bit the rapidity of technological change 
and what is actually coming on over the horizon.
    Chairman Kohl. I'll ask one more question, then I'm going 
to open it up for any comments you have before we close.
    Mr. Karmazin, 2 days ago the Kansas City Star published a 
column entitled, ``Sirius-XM Merger A Bad Idea''. In the 
article it stated that if the Sirius-XM merger was allowed 
``Clear Channel'' would start buying up every radio station in 
America that it doesn't already own, Apple will be able to buy 
any company that begins to challenge its dominance in the 
market for portable music players, Comcast will begin merger 
talks with Time-Warner, and there will be nothing standing in 
the way of a marriage of NBC and CBS.''
    Mr. Karmazin, doesn't the author of this article have a 
point? If we allow one company to control all of satellite 
radio, why not allow one company to dominate over-the-air 
radio, another company to dominate cable television, and yet 
another company to own all the television networks, et cetera?
    Won't allowing your merger establish some kind of a 
precedent that could easily lead to consolidation in many other 
areas of communication?
    Mr. Karmazin. Senator, I have a great deal of respect for 
you and this Committee and the Justice Department and the FCC, 
and I don't think that because you allow one means you're under 
any obligation to do anything else. I think each of these 
markets stand on their own. I believe that there is not that 
risk.
    I can also tell you that publications like the L.A. Times 
and USA Today and the Wall Street Journal and the Chicago 
Tribune have all taken the opposite point of view. So I don't 
want to get into dueling editorials, but I can assure you that 
there have been an awful lot of very respected publications who 
believe, as I do, that this merger is in the public interest.
    Chairman Kohl. OK. Other comments? Ms. Quass?
    Ms. Quass. I would just say that none of us can sit here 
and predict the future. And while we all hope that the 
technology continues to advance both from over-the-air free 
radio and many other sources, whether it is I-Pod or whatever, 
but I think the concern that I wanted to just clarify before we 
leave today is, I want to make it clear that over-the-air local 
radio does not compete on a national platform with satellite 
radio. There are two competitors, XM and Sirius.
    They are the only ones who have the bundle and offer the 
array of services on the platform that they have, that is 
mobile, that is nationwide. We need to be clear that if we're 
going to compete and we want to talk about competing on a level 
playing field, that we get on a level playing field. The 
national market is not it. We do not compete. The only 
competition is between those two. Thank you.
    Chairman Kohl. Thank you.
    Ms. Sohn?
    Ms. Sohn. Yes. I want to agree with Mr. Karmazin. I'm not 
concerned about the slippery slope argument either, that if you 
grant this merger you'll have to grant every other one the 
digital space. I assume antitrust authorities judge each merger 
on its merits, so I don't buy that argument.
    The second thing is, it was so interesting to hear Mr. 
Balto talk about how the broadcasters are talking consistent 
with the public interest. You know, you're the antitrust 
expert, I'm the communications expert. I've been doing this for 
20 years. Let me tell you, they rarely do anything that's 
consistent with the public interest. OK. They're here because 
they haven't liked satellite radio from the get-go. Their idea 
of a level playing field is one that puts them at the top and 
everybody at the bottom.
    I mean, you know, the broadcast industry has a history of 
going to government to protect it, must carry exemption from 
paying the performance fees, free spectrum. We can go on and on 
and on. So, be wary when you listen to the broadcasters about 
why they are opposing this merger. Just remember their history 
in trying to limit satellite radio from the get-go.
    Chairman Kohl. Mr. Balto?
    Mr. Balto. I think the merger should be stopped. We only 
have access to public information, a point Gigi and I both 
made. But based on that public information, there are serious 
concerns raised.
    I think it's crucial to understand there is a reason why 14 
million people pay $13 a month for this service. It's because 
satellite radio provides a valueable service, a service that is 
different than other alternatives. The courts consistently look 
to those characteristics to determine what a relevant market 
is. In this case, the relevant market is satellite radio.
    Technological change. Antitrust enforcers and courts hear 
those arguments all the time. If they had been accepted, the 
Antitrust Division's case against Microsoft might have fallen 
to the wayside.
    But the key thing here is, if that's true, this merger 
makes sense for these merging parties today, it will make sense 
the day consumers can receive a form of a cluster of services 
of radio in my car by Internet. It will still make sense then, 
then do the deal then. Otherwise, if you approve the merger as 
proposed, you're writing a check on your children and your 
grandchildren's behalf by agreeing to a monopoly that will last 
forever.
    Chairman Kohl. Thank you.
    Mr. Karmazin, do you want to make one last comment?
    Mr. Karmazin. Sure. Thank you very much. I appreciate the 
opportunity to be here. I look forward to working with this 
committee, as well as the regulators, in demonstrating that 
this merger is not anti-competitive and in the consumers' best 
interests, and I look forward to everybody giving the 
broadcasters the level playing field they want so that they 
should pay for performance rights as well as spectrum, which is 
sort of what satellite radio is doing right now.
    Chairman Kohl. Thank you.
    Well, we thank you all for being here, both those in the 
audience, as well as those of you--and you've been really 
good--who have agreed to be here today and testify and make 
comments.
    As Senator Hatch said and as we all understand, this is a 
big issue. It's something that is going to reverberate across 
our country no matter which way it goes, I think, particularly 
if we allow the merger, so let's see what happens.
    Thank you, Mr. Karmazin. Thank you, guys.
    [Whereupon, at 4:12 p.m. the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.] 

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