Tuesday, February 20, 2007

The Proposed XM-Sirius Merger

I love the proposed XM-Sirius merger. But then, I'm biased: I own a little stock in both companies!

I think the antitrust issues can be overcome and the FCC/DOJ will sign off on the merger. Here are some reasons why.

First, satellite radio has a great deal of competition. There is traditional radio, which has increased its offerings through high-definition broadcasting. There are various internet radio and related offerings. And there is the iPod and similar devices, which allow consumers to carry with them huge quantities of music and thus making radio less important.

Second, both XM and Sirius are pretty fragile financially. If one were to go under, the industry would be down to one company anyway; and if both were to go under, there would be nothing. Might as well let them merge so as to ensure there is at least one healthy company.

Third, it will reduce costs tremendously, which should lower prices and improve quality.

And fourth, with this type of regulated industry, there is no real danger of the merged company raising prices too much even if it had the power to do so. If it did, the FCC could just step in. (And the FCC might very well make price increase limits a condition of approving the deal).

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