Saturday, May 05, 2007

Barron's: Blair Levin Of Stifel On SIRI+XMSR Merger

A Beltway Vet Charts Telecom's Future
By TIERNAN RAY, Barron's, 5/4/07

FOR FOUR YEARS IN THE MID-1990S, Blair Levin was chief of staff at the Federal Communications Commission, overseeing the landmark government auctions of airwaves that gave birth to the U.S. cellular phone business.
On the eve of an auction of television airwaves this year, Barron's Online caught up with Levin, now a Washington-based managing director with investment bank Stifel Nicolaus, to discuss the last big land-grab in wireless communications, the fate of the XM-Sirius satellite radio merger, and where competition is headed in telecom, among other issues...

...Q: What's your view on the proposed XM Satellite Radio and Sirius Satellite Radio merger? A: A lot of folks are focused on the political opposition to the XM/Sirius deal. I'm a little surprised people are focused on that. There's always political opposition to deals, but what you want to look at is the economic analysis of the deal, because that tells you whether or not the Department of Justice is likely to say yes or no. [By that I mean] market share, pricing behavior -- the stuff that economists get paid to analyze, as opposed to political operatives. Neither proponents nor opponents in my view have focused much attention on those economic metrics. For example, one of the things that's interesting is that you have two companies, and there's basically been one price increase in five years. If you think that they're a separate market and there's only two competitors, you would have to say why aren't they raising their prices more, particularly since they're not making money? So you would want to analyze that. I don't know what the analysis will show. My sense is it's more likely the deal will go through, and I realize that's a minority view on Wall Street.
Q: Better than 50%? A: Yes, but not much better! Let me point out to you the two things other people say that I find most interesting and wrong. No. 1, there's a significant focus on what the FCC will do. The Justice Department will make the first call [regarding the analysis of the competitive environment] and they'll say yes or no. There has never been a case where if the DOJ says yes, the FCC says no. So, I'm more focused on the DOJ relative to the FCC, even though I love the FCC! I'm talking about what history and institutional logic suggest.
No. 2, a number of critics say the deal is just like the direct broadcast satellite deal from a few years back. [Note: Echostar Communications tried to buy DirecTV in 2002 but the DOJ and FCC stopped the deal]. Well, with all due respect, the video market is quite different from the audio market. In the case of satellite TV, there was a fear that while there might be competition in New York, there would be no competition in rural America. There is no possibility of price discrimination in satellite radio because the product is sold nationally and you can get your radios anywhere. Moreover, there are certain things going on in the market that will make [satellite radio's] business more difficult. I would point to the 700 megahertz [airwaves] auction, which once it's done, increases the odds of Internet radio in the car. If you thought Internet radio was going to be in every car, how would you look at this deal? I think you'd look at it very differently....read more: here

5/05/2007 08:58:00 AM

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  • Excellent post. Interesting that FCC has never disagreed with DOJ. So my guess is if DOJ approves, the most the FCC would do is impose some conditions on the merger. After reading this I am much more comfortable that the merger is going to happen.

    By Anonymous MUSCLE13, at May 06, 2007 12:05 AM  

  • Kind of unusual that Stifel's Kit Spring was quoted last week putting the likelihood at 25%.

    By Anonymous Anonymous, at May 06, 2007 1:28 PM  

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