Bear Sterns Issues Report

Bob Peck, of Bear Stearns, issued a report subsequent to yesterdays testimony, Martin’s presentation at their conference as well as XM’s presentation.

Report Excerpts:

First and Ten (Months That Is) -- Part II

In the second hearing at the Congress where satellite radio merger was a key issue, the House Subcommittee on Telecommunications and the Internet held its hearing into “The Digital Future of the United States: Part II - The Future of Radio” yesterday. While the process of analyzing the proposed merger began last week, the current rounds likely will prove to be just the the beginning of a long process of Congressional, Department of Justice and FCC review.

In the hearing, witnesses included Mel Karmazin, CEO of Sirius, Peter Smyth of Greater Media, who was representing the NAB, Geoffrey Blackwell, who discussed issues related to minorities, Robert Kimball of Real Networks, and Gene Kimmelman of the Consumer Union. In its memorandum, the Subcommittee outlined its objective as “the purpose of this hearing will be to assess the state of the competition and innovations in radio services and explore issues of public policy in this market.”

While each witness gave their point on the proposed merger, Mr Karmazin emphasized that they had 2 main obligations:

1) Prove a merger is not anticompetitive and

2) prove a merger would be in consumers best interest. Many times he stated that he was willing to give concessions and insisted DARS was committed to not raising prices.

FCC Chairman Kevin Martin Keynoted at our Media Conference. While the FCC has not yet received a formal application from the companies, Chairman Martin stated that the key issue would be defining the market. Concessions would depend on the harms identified. While the FCC would be serious about enforcing rules, past infractions do not necessarily have “character implications.”

We think the process has merely begun (there is another Hearing next week before the same Subcommittee where the FCC Commissioners would be testifying). It will be a long road and potentially uphill climb; further, we believe that if a deal were ultimately approved, it would likely have multiple concessions.