Washington - Final comments on whether the Federal Communications Commission (FCC) should extend satellite-radio rate caps beyond July 28 are due tomorrow at the FCC.
During a Deutsche Bank conference earlier this week, SiriusXM executive VP/chief financial officer David Frear said the caps would "probably expire," claiming most of the comments sent to the FCC argued for expiration.
of the Sirius-XM merger in 2008 on a commitment by the broadcasters to hold prices for three years. The FCC also reserved the right to extend, remove or modify the caps after the three years were up.
The caps apply to the broadcaster's $12.95/month standard packages as well as to the $6.99 a la carte service offering a selection of about 50 channels, $9.99 mostly news/talk service, and a $9.99 mostly music service. The cap also applies to a $16.99/month "best of" packages that delivers all XM channels, plus some Sirius channels, and all Sirius channels plus some XM channels. The caps also cover family-friendly versions of the broadcaster's plans, allowing for $1 off the standard packages and $2 off the "best of" packages.
The caps do not apply to future services that SiriusXM would offer under its 2.0 service due in the fall.
Some plans -- such as "best of," a la carte, mostly news, mostly talk, and family-friendly options -- were created to meet conditions required by the FCC for merger approval. Only the rate caps on those plans could expire on July 28, not the requirement that the plans be offered, an FCC spokesperson told TWICE.
When it approved the merger, the FCC said the voluntary commitment to freeze prices, excluding passthroughs of any increase in music royalty fees, "would mitigate the harm from any post-merger price increases." The FCC also stated that "it did not know what the competitive landscape would be like in three years" and that it would seek public comment "on whether the price cap continues to be necessary in the public interest and whether the price cap should be modified, removed, or extended."
In arguing for a lifting of the caps, SiriusXM contended that "it is clear that the audio entertainment market is even more robustly competitive today than it was in 2008" and that "satellite radio competes for listeners with an expanding array of audio entertainment choices -- most of which are available to consumers for free." The choices include HD Radio, iPods, and other portable audio devices that "increasingly include Internet-based services, such as Pandora, Rhapsody, Slacker, Lastfm and iHeartradio," SiriusXM said. "This competition for audio entertainment is especially acute in vehicles, with several automakers introducing features integrating Internet-based services, further reducing any remaining arguable hurdles to the seamless use of smartphones, iPods and other portable audio devices in vehicles."
In its comments to the FCC, SiriusXM also quoted from the Department of Justice's approval of the merger. The department at the time noted that "a number of technology platforms are under development that are likely to offer new or improved alternatives to satellite radio [including] ... the expected introduction within several years of next-generation wireless networks capable of streaming Internet radio to mobile devices."
In his comments at the Deutsche Bank conference, Frear said IP-based music services "will continue to proliferate and will move from fixed locations to mobile" at what he called a "rapid" pace.
Although "it will get more competitive in the car," Frear continued, "I like our chances." He pointed to the company gaining 20 million subscribers despite competition with terrestrial analog and HD Radio and Internet radio. He also pointed out that Internet music services "are going away from subscription to ad-based [business plans]." That development "makes me feel a little bit better," he said, because "we have done well against ad-based radio." Local adds, he added, "are not a meaningful part of our business, and most of the 2 percent of revenues coming from ads are coming from national ads.
The growing competition for ear time could come in part from owners of 2.3GHz Wireless Communications Service (WCS) spectrum, but the owners, through their WCS Coalition, argued that the FCC should retain the existing price cap on an interim basis. The cap should stay, the coalition said, until the FCC decides how to respond to petitions to reconsider a 2010 decision allowing mobile wireless service -- potentially including Internet music service -- in the 2.3GHz WCS band. Mobile service in the WCS band, which operates next to satellite-radio spectrum, was originally precluded under 1997 rules adopted by the FCC, which limited WCS service to fixed locations.
The 2010 decision was "a useful first step towards eliminating the regulatory impediments that effectively precluded WCS from delivering Internet-based services to mobile consumers," the coalition said.
Questioning whether cellular networks have the capacity to handle Internet radio traffic, the WCS Coalition said it "certainly believes that, if sufficient mobile broadband capacity is available to support the wireless delivery of Internet-based services to automobiles, those services will be perceived as competitive by consumers, and SiriusXM's ability to increase prices will be disciplined."
However, "a consumer will only consider Internet-based services as a competitive alternative to SiriusXM if he or she consistently can receive those Internet-based services without disruption (either due to a lack of bandwidth, RF interference, or coverage gaps).
"By first assuring that spectrum will be available for the delivery of Internet-based audio services to automobiles and other places where consumers listen to SiriusXM, the Commission will then be able to lift the price cap without fear of anti-consumer impacts."